<SUBMISSION>
<ACCESSION-NUMBER>0001047469-05-006784
<TYPE>10-K
<PUBLIC-DOCUMENT-COUNT>13
<PERIOD>20041231
<FILING-DATE>20050316
<DATE-OF-FILING-DATE-CHANGE>20050316
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>ISIS PHARMACEUTICALS INC
<CIK>0000874015
<ASSIGNED-SIC>2834
<IRS-NUMBER>330336973
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-K
<ACT>34
<FILE-NUMBER>000-19125
<FILM-NUMBER>05685991
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2292 FARADAY AVE
<CITY>CARLSBAD
<STATE>CA
<ZIP>92008
<PHONE>7609319200
</BUSINESS-ADDRESS>
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<STREET1>2292 FARADAY AVE
<CITY>CARLSBAD
<STATE>CA
<ZIP>92008
</MAIL-ADDRESS>
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<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>a2153640z10-k.htm
<DESCRIPTION>FORM 10-K
<TEXT>
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<P ALIGN="CENTER"><FONT SIZE=5><B>UNITED STATES<BR>  </B></FONT><FONT SIZE=5><B>SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>Washington, DC 20549  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>Form&nbsp;10-K  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=3><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF<BR>
THE SECURITIES EXCHANGE ACT OF 1934  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>For the fiscal year ended December 31, 2004  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> Commission file number 0-19125  </B></FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=5><B>Isis Pharmaceuticals,&nbsp;Inc.<BR>  </B></FONT><FONT SIZE=2>(Exact name of Registrant as specified in its charter) </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>Delaware</B></FONT><FONT SIZE=2><BR>
(State or other jurisdiction of incorporation or organization)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>33-0336973</B></FONT><FONT SIZE=2><BR>
(IRS Employer Identification No.)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP"><BR><FONT SIZE=2><B>1896 Rutherford Road, Carlsbad, CA 92008<BR> </B></FONT><FONT SIZE=2>(Address of principal executive offices, including zip code)</FONT></TD>
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<TR VALIGN="BOTTOM">
<TD COLSPAN=3 ALIGN="CENTER" VALIGN="TOP"><BR><FONT SIZE=2><B>760-931-9200<BR> </B></FONT><FONT SIZE=2>(Registrant's telephone number, including area code)</FONT></TD>
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<P ALIGN="CENTER"><FONT SIZE=2>Securities
registered pursuant to Section 12(b) of the Act: </FONT><FONT SIZE=2><B>None<BR>  </B></FONT><FONT SIZE=2>Securities registered pursuant to Section 12(g) of the Act:<BR></FONT> <FONT SIZE=2><B>Common Stock, $.001 Par Value  </B></FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the
past 90&nbsp;days.&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation&nbsp;S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form&nbsp;10-K or any amendment to
this Form&nbsp;10-K.&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule&nbsp;12(b)-2 of the Securities Exchange Act of
1934).&nbsp;Yes&nbsp;<FONT FACE="WINGDINGS">&#253;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The approximate aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the last sale price of the
common stock reported on the National Association of Securities Dealers Automated Quotation National Market System was $286,390,779 as of June&nbsp;30, 2004.* </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares of voting common stock outstanding as of March&nbsp;3, 2005 was 57,527,898. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>DOCUMENTS INCORPORATED BY REFERENCE<BR>  </B></FONT><FONT SIZE=2>(To the extent indicated herein) </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Portions
of the registrant's definitive Proxy Statement to be filed on or about April&nbsp;11, 2005 with the Securities and Exchange Commission in connection with Registrant's annual
meeting of stockholders to be held on May&nbsp;26, 2005 are incorporated by reference into Part&nbsp;III of this Report. The Exhibit Index (Item No.&nbsp;15) located on pages&nbsp;66 to 70
incorporates several documents by reference as indicated therein. </FONT></P>

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<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Excludes
7,230,336 shares of common stock held by directors and officers and by stockholders whose beneficial ownership is known by the Registrant to exceed 10% of the common stock
outstanding at June&nbsp;30, 2004. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant. </FONT></DD></DL>
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<BR></FONT><FONT SIZE=2><B>FORWARD-LOOKING STATEMENTS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>This report on Form&nbsp;10-K and the information incorporated herein by reference contain forward-looking statements
regarding our business, the financial position of Isis Pharmaceuticals,&nbsp;Inc. and the therapeutic and commercial potential of our technologies and products in development. Any statement
describing our goals, expectations, intentions or beliefs is a forward-looking statement and should be considered an at-risk statement, including those statements that are described as
Isis' clinical goals. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and
effective for use as human therapeutics, in developing and commercializing technology and systems used to identify infectious agents, and in the endeavor of building a business around such products
and services. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by
such forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report on Form&nbsp;10-K, including
those identified in the section of Item 1 entitled "Risk Factors." Although our forward-looking statements reflect the good faith judgment of our management, these statements are based only on facts
and factors currently known by us. As a result, you are cautioned not to rely on these forward-looking statements.</B></FONT></P>

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<BR></FONT><FONT SIZE=2><B>TRADEMARKS    <BR>    </B></FONT></P>

<UL>

<P><FONT SIZE=2><B>Affinitak&#153; is a trademark of Eli Lilly and Company.<BR>
Gemzar&reg; is a registered trademark of Eli Lilly and Company.<BR>
Macugen&reg; is a registered trademark of Eyetech Pharmaceuticals,&nbsp;Inc.<BR>
TAXOTERE&reg; is a registered trademark of Aventis.<BR>
Vitravene&reg; is a registered trademark of Novartis&nbsp;AG.</B></FONT></P>

</UL>
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<BR></FONT><FONT SIZE=2><B>PART I    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="de1045_item_1._business"> </A>
<A NAME="toc_de1045_2"> </A></FONT> <FONT SIZE=2><B>Item 1. Business    <BR>    </B></FONT></P>

<UL>

<P><FONT SIZE=2><B> Overview  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a biopharmaceutical company exploiting proprietary RNA-based drug discovery technologies to identify and commercialize novel drugs to treat
important diseases. RNA, or ribonucleic acid, is a molecule that provides to a cell the information the cell needs to produce proteins, including those proteins implicated in disease. Interference
with RNA can keep the body from producing proteins that are involved in disease. We are the leader in exploiting RNA as a target for drugs, and have a strong proprietary position in
RNA-based drug discovery technologies. With our primary technology, antisense, we create inhibitors, or oligonucleotides, designed to hybridize, with a high degree of specificity to their
RNA target and modulate the production of specific proteins associated with disease. We also use our antisense technology internally and in collaborations with pharmaceutical companies to rapidly and
efficiently identify and prioritize attractive gene targets for drug discovery. Within our Ibis division, we are expanding on our RNA expertise by creating a system that can rapidly and accurately
identify a broad range of infectious organisms with a single test. Our ongoing development of this technology and a system related to this technology has been funded primarily by agencies within the
United States government. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
successfully commercialized our first antisense drug, Vitravene. Vitravene demonstrates our ability to meet Food and Drug Administration, or FDA, and European regulatory requirements,
and to commercially manufacture antisense drugs. We and our partners currently have 10 antisense products in preclinical and clinical development, the majority of which are in Phase I or Phase II
human clinical trials. Our products in development address numerous therapeutic areas with major market potential, including inflammatory, metabolic and cardiovascular diseases, and cancer. We are
expanding the
therapeutic opportunities for antisense drugs by developing a variety of formulations to enhance patient convenience and compliance. In addition, our pipeline has matured to consist primarily of drugs
based on our proprietary second-generation chemistry. Our second-generation antisense drugs offer a number of advantages over prior chemistries. Specifically, these drugs offer the potential for
improved safety, increased potency and a longer half-life, which correlates with durability of therapeutic response and the potential for less frequent dosing. Physicians may be able to
dose our second-generation drugs as infrequently as once every two weeks to once a month. We are also making progress on developing oral formulations of our second-generation antisense drugs. Our oral
formulations may increase the commercial value of our antisense drugs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within
our Ibis division we have invented technology that has the potential to revolutionize the identification of infectious diseases. This technology is called Triangulation
Identification for Genetic Evaluation of Risks, or TIGER. We have applied the TIGER technology to develop a system to identify from a sample a broad range of infectious organisms, including organisms
that are newly-emerging, genetically altered and unculturable. We have successfully demonstrated proof-of-principle of the TIGER system with the identification of a variety of
bacteria and viruses in both environmental and human clinical samples. During 2004, we advanced the development of our TIGER system to include application development for epidemiological surveillance
and biological products screening. These applications represent the first of many we plan to develop to enhance the TIGER system's commercial value and opportunity in the government, research, medical
and diagnostic markets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
date, we have earned $40.1&nbsp;million in revenue from several government agencies, including up to $37.5&nbsp;million for the development of TIGER and $2.6&nbsp;million to
discover small molecule drugs, under contracts valued at up to $66.3&nbsp;million. These agencies include the Defense Advanced Research Projects Agency, or DARPA, the National Institute of Allergy
and Infectious Diseases, or NIAID, part of the National Institutes of Health, or NIH, the Centers for Disease Control, or CDC, the Federal </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<P><FONT SIZE=2>Bureau
of Investigation, or FBI, and the United States Army Medical Research Institute of Infectious Diseases, or USAMRIID. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a broad patent portfolio covering our products and technologies. We have rights to more than 1,500 issued patents, which we believe represents the largest antisense and
RNA-oriented patent estate in the pharmaceutical industry. Our intellectual property is a strategic asset that we are exploiting to generate near term revenue and that we expect will also
provide us with revenue in the future. The principal purpose of our intellectual property portfolio is to protect our products and those of our partners. Our intellectual property portfolio also
enables us to expand our pipeline by granting to other companies limited access to antisense technology through licenses we grant them. Licensing partnerships may include traditionally structured
antisense drug discovery and development collaborations with large pharmaceutical companies like Lilly and Amgen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Antisense
technology allows us to repeatedly produce more drug candidates than we can afford to develop on our own. As a result, we have extended our licensing partnerships to include
our satellite company strategy in which we provide our expertise and intellectual property position in RNA-based therapeutics to industry partners that are interested in developing
RNA-based therapeutics. Because these companies work closely together with us, with the common goals of advancing the technology and/or pipeline, we sometimes refer to these companies as
satellite companies. These partnerships allow us to benefit from our partners' expertise and highly focused research efforts, while our partners benefit from our experience in RNA-based
drug discovery and development and access to our intellectual property. In return for providing companies with access to our technology, we receive an ownership interest in the resulting products
and/or in the companies. Through these relationships we are expanding the reach and potential of antisense therapeutics and participating in the success of multiple companies and products. This
provides us with the opportunity to create a much broader antisense pipeline than we could afford to develop on our own, while minimizing our financial obligations. We have implemented this integral
component of our strategy through our partnerships with Alnylam Pharmaceuticals,&nbsp;Inc., or Alnylam; Antisense Therapeutics,&nbsp;Ltd., or ATL; Ercole Biotech&nbsp;Inc., or Ercole; OncoGenex
Technologies,&nbsp;Inc., or OncoGenex; Santaris Pharma A/S, or Santaris; and Sarissa,&nbsp;Inc., or Sarissa. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we have an active intellectual property licensing program in which we license aspects of our intellectual property to companies like Hybridon,&nbsp;Inc., or Hybridon;
Integrated DNA Technologies,&nbsp;Inc., or IDT; Roche Molecular Systems, or Roche: atugen A/S, or atugen; and Dharmacon,&nbsp;Inc., or Dharmacon. Through this program, we also license our
non-antisense patents as we did with Eyetech Pharmaceuticals,&nbsp;Inc., or Eyetech. In December&nbsp;2001, we licensed several chemistry patents to Eyetech for the development of
Macugen, a drug for the treatment of wet age-related macular degeneration, or AMD, that Eyetech is co-developing and commercializing with Pfizer,&nbsp;Inc., or Pfizer. In
2004, we earned $4.0&nbsp;million in milestone payments from Eyetech associated with their filing of a New Drug Application, or NDA, for Macugen with the FDA and Eyetech's receipt of marketing
clearance for the drug. In January&nbsp;2005, we sold a portion of our royalty rights in Macugen to Drug Royalty USA.,&nbsp;Inc., or DRC, in exchange for aggregate payments of $24&nbsp;million
over the next three years. To date, we have generated nearly $70.0&nbsp;million from our intellectual property licensing program that helps support our internal drug discovery and clinical
development programs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
incorporated in California in 1989, and in 1991 we reincorporated as a Delaware corporation. Our principal offices are in Carlsbad, California. In November&nbsp;2003, we established
Isis Pharmaceuticals Singapore Pte&nbsp;Ltd, our wholly-owned subsidiary in Singapore. As part of our strategic decision to reorganize and refocus our resources to advance our most promising
second-generation drugs and to continue the development of antisense technology, we decided to close our research and development laboratory in Singapore during the first quarter of 2005. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<P><FONT SIZE=2><B>Drug Discovery and Development  </B></FONT></P>

<UL>

<P><FONT SIZE=2><B><I> Antisense Drug Discovery  </I></B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proteins are essential, working molecules in a cell. Almost all human diseases result from inappropriate protein production or improper protein activity.
Scientists use traditional drug discovery methods to design drugs to interact with the proteins in the body that are supporting or causing a disease. Antisense technology is different from traditional
drug discovery because it specifically targets disease-causing proteins before the body produces them. We design our antisense drugs, or antisense inhibitors, to act earlier in the disease process
than traditional drugs and to interrupt the production of disease causing proteins without disrupting proteins responsible for the body's normal functioning. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Genes
contain the information necessary to produce proteins. A gene is made up of bases, or nucleotides: Adenine, Thymine, Guanine, and Cytosine, commonly known as A, T, G and C, which
are linked together to form&nbsp;a two-stranded structure that resembles a twisted ladder, known as deoxyribonucleic acid, or DNA. The nucleotides on one side of the ladder bind weakly
to complementary nucleotides on the other strand according to specific rules; for example, A pairs with T and G pairs with C, creating the ladder's rungs. This highly specific nucleotide pairing is
called hybridization. The sequence or order of these nucleotides establishes the cell's recipes for making proteins. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
a cell transcribes information from DNA into messenger RNA, or mRNA, the two complementary strands of the DNA partly uncoil. One strand acts as a template and information stored in
the DNA strand is copied into a complementary mRNA. mRNA then carries the information to cellular structures called ribosomes, the cell's factories for manufacturing proteins. The ribosome reads the
encoded information, the mRNA's nucleotide sequence, and in so doing, strings together amino acids to form&nbsp;a specific protein. This process is called translation. Antisense technology
interrupts the cell's protein production process by preventing the RNA instructions from reaching the ribosome, thus inhibiting the production of the protein. The mRNA sequence of nucleotides that
carries the information for protein production is called the "sense" strand. The complementary nucleotide chain that binds specifically to the sense strand is called the "antisense" strand. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
use the information contained in mRNA to design chemical structures, called antisense oligonucleotides or antisense drugs, which resemble DNA and RNA and are the complement of mRNA.
These potent antisense drugs inhibit the production of disease-causing proteins. Antisense drugs can selectively inhibit one protein among a closely related group of proteins because antisense drugs
interact with a specific RNA and not with the RNAs of other members of the group. It is easier to differentiate between closely related proteins at the RNA sequence level than by binding to the
protein itself, as traditional drugs do. As a result, we can design antisense drugs that selectively inhibit the disease-causing member of the group without interfering with those members of the group
necessary for normal bodily functions. This unique specificity means that antisense drugs may be less toxic than traditional drugs, because we can design them to minimize the impact on unintended
targets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further,
the design of antisense compounds is less complex, more rapid and more efficient than traditional drug design directed at protein targets. Traditional drug design requires
companies to identify a small molecule that will interact with protein structures to affect the disease-causing process. Since predicting which small molecules will do this has proven to be difficult,
traditional drug discovery involves testing hundreds of thousands of small molecules for their ability to interfere with protein function. As a result, traditional drug discovery is a labor intensive,
low probability endeavor. In contrast, we design our antisense compounds to bind to mRNA structures through well understood processes. We can design prototype antisense drugs as soon as we identify
the sequence for the mRNA receptor. With the completion of the human genome sequencing project, we now know the sequence for all potential mRNA receptors in the human body. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are the leader in the discovery and development of this exciting new class of therapeutic compounds. Our proprietary technology to discover and characterize novel antisense inhibitors
has enabled our scientists to modify the properties of our antisense drug candidates for optimal use with particular targets and thus, to produce a broad proprietary portfolio of compounds applicable
to many disease targets. Further, over the past decade, our scientists have made great advances in chemistries, which we call our second-generation antisense drugs. Second-generation drugs may have
increased potency, stability, oral bioavailability and an improved side effect profile. We have also made significant progress in developing new formulations of antisense drugs, like oral,
subcutaneous, intravitreal, aerosol, enema and topical cream that further expand the potential for antisense technology. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further,
we use antisense technology to generate information about the function of genes and to determine the value of genes as drug discovery targets. This information forms the basis
of the first step of our antisense drug discovery program. We use this information to direct our own antisense drug discovery research, and that of our antisense drug discovery partners. We have
created inhibitors to thousands of genes, validated many targets and dissected numerous disease pathways. </FONT></P>

<UL>

<P><FONT SIZE=2><B><I> Small Molecule Antibmicrobial Drug Discovery  </I></B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the development of TIGER, our Ibis division focused on discovering novel small molecule antimicrobial drugs. DARPA principally funded this project until
2002, when USAMRIID elected to be the transition partner for a DARPA-sponsored research program to discover small molecule
antimicrobial drugs for biological warfare defense. As part of the transition we entered into a three-year, $2.4&nbsp;million contract with USAMRIID to advance this work. As of
December&nbsp;31, 2004, we had received $2.1&nbsp;million from the United States government for this program. We expect to allocate limited resources to advance this technology once we complete
our work under the USAMRIID contract in the first quarter of 2005. Our goal is to secure a partner for this program. </FONT></P>

<P><FONT SIZE=2><B>Ibis Division  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within our Ibis division we have invented technology that has the potential to revolutionize the identification of infectious diseases. This technology is called
Triangulation Identification for Genetic Evaluation of Risks, or TIGER. We have applied the TIGER technology to develop a system to identify from a sample a broad range of infectious organisms,
including organisms that are newly-emerging, genetically altered and unculturable. We have successfully demonstrated proof-of-principle of the TIGER system with the
identification of a variety of bacteria and viruses in both environmental and human clinical samples. During 2004, we advanced the development of our TIGER system to include application development
for epidemiological surveillance and biological products screening. These applications represent the first of many we plan to develop to enhance the TIGER system's commercial value and opportunity in
the government, research, medical and diagnostic markets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TIGER
is the product of core technology development and small molecule drug discovery research conducted within our Ibis division. In its early years, Ibis focused on discovering novel
small molecule antimicrobial drugs. Ibis' central focus now is to develop and commercialize our TIGER technology. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
advancement of TIGER application development has brought us closer to realizing the commercial potential of this unique and proprietary technology. To continue this progress, we
recently hired Michael Treble to head our Ibis division. Mr.&nbsp;Treble's knowledge and expertise in product development and in commercializing research instruments and diagnostic products will
complement the expertise and innovation of David J. Ecker, Ph.D., the scientific leader of TIGER technology development. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
develop the TIGER technology and applications, our Ibis division has received contracts from a number of government agencies, including DARPA, the NIAID, part of the NIH, the CDC and
the FBI. Each of these agencies represents a significant source of funding for our TIGER program. To </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

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<P><FONT SIZE=2>date,
we have earned $40.1&nbsp;million in revenue under our government contracts and grants. Also, we have approval to invoice our government partners an additional $8.6&nbsp;million under our
existing contracts and grants. We may receive continued approval to invoice our government partners under these contracts based upon a variety of factors, including the accomplishment of program
objectives and the exercise of additional contract options by the contracting agencies. In addition, these agencies may terminate these contracts and grants at their convenience at any time, even if
we have fully performed our obligations. Consequently, we may never receive the full amount of the potential value of these awards. Our Ibis division has received contracts and grants from numerous
government agencies valued at up to $63.2&nbsp;million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004 and 2003, revenue generated from agencies of the United States Government totaled 28% and 20%, respectively, of our total revenue. Refer to </FONT> <FONT SIZE=2><I>Note&nbsp;7, "Segment Information and Concentration of Business Risk,
"</I></FONT><FONT SIZE=2> starting on page F-30 of this report on
Form&nbsp;10-K for additional information about our Ibis division. </FONT></P>

<P><FONT SIZE=2><B><I>Approved Product and Products In Development  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We successfully developed the first antisense drug to reach the market, Vitravene, for CMV retinitis, which is available through our partner, Novartis Opthalmics
AG. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have designed our drugs in development to treat a variety of health conditions, including inflammatory, metabolic, and cardiovascular diseases, and cancer, and we and our partners are
studying them in intravenous, subcutaneous, topical cream, enema and oral formulations. Intravenous and subcutaneous formulations are commonly grouped together and referred to as parenteral forms of
administration. The following table lists our approved product and each of our and our partners' products under development, its target, disease indication and development status, as well as our
commercial rights. </FONT></P>

<P><FONT SIZE=2><I>Isis Drugs in Development  </I></FONT></P>

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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="19%" ALIGN="LEFT"><FONT SIZE=1><B>Product(1)<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Target</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Potential Disease<BR>
Indication(s)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Development Status(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Commercial Rights</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>Vitravene (I)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>CMV</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>CMV Retinitis</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Launched in the U.S. and Europe (3)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Isis/Novartis Ophthalmics AG(3)</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Alicaforsen (ISIS 2302) (E)</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP"><FONT SIZE=2>ICAM-1</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Ulcerative Colitis</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Phase II</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Isis</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>ISIS 113715 (P)*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>PTP-1b</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Diabetes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Phase II</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Isis</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>ISIS 301012 (P)*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>apoB-100</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>High Cholesterol</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Phase I</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Isis</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>ISIS 301012 (O)*</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" VALIGN="TOP"><FONT SIZE=2>apoB-100</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>High Cholesterol</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Preclinical</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="TOP"><FONT SIZE=2>Isis</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>ISIS 345794 (P)*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>STAT-3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Cancer</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Preclinical</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%"><FONT SIZE=2>Isis</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_dg1045_1_8"> </A> </FONT> <FONT SIZE=2><I>Partner Drugs in Development  </I></FONT></P>

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<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Product(1)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Target</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Potential Disease<BR>
Indication(s)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Development Status(2)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="20%" ALIGN="CENTER"><FONT SIZE=1><B>Commercial Rights</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>ATL 1102 (ISIS 107248)(P)*</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"><FONT SIZE=2>VLA-4</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Multiple Sclerosis</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Phase II</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>ATL</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>OGX-011 (ISIS 112989) (P)*</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"><FONT SIZE=2>Clusterin</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Cancer</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Phase I/II</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>OncoGenex / Isis</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>ATL 1101 (T)*</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"><FONT SIZE=2>IGF-1R</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Psoriasis</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Phase I</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>ATL</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>LY2181308 (P) *</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"><FONT SIZE=2>Survivin</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Cancer</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Phase I</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Lilly</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>LY2275796 (P) *</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"><FONT SIZE=2>eIF-4E</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Cancer</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Preclinical</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP"><FONT SIZE=2>Lilly</FONT></TD>
</TR>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Drugs
based on proprietary second-generation chemistry
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>I&nbsp;=
Intravitreal; P&nbsp;= Parenteral; T&nbsp;= Topical; O&nbsp;= Oral; E&nbsp;= Enema
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>A
compound in the preclinical phase of development is one in which we or our partners have made a decision to initiate toxicology and pharmacokinetic studies in animals to support the
initiation of human clinical studies.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Novartis
Ophthalmics AG has the exclusive worldwide rights to distribute Vitravene, which it distributes on a limited basis. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following section provides more detailed descriptions of our approved product and those products in clinical development and the disease indications they target. We also have a
significant research program. Our goal for 2005-2006 is to advance at least two new drug candidates from our cardiovascular, metabolic or inflammatory disease research programs into
research development. </FONT></P>


<P><FONT SIZE=2><B><I>Cytomegalovirus, or CMV Retinitis  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Individuals with suppressed immune systems, such as those with AIDS resulting from the HIV virus, are susceptible to opportunistic infections caused by CMV. Among
patients with AIDS, CMV retinitis is the primary cause of blindness. Currently approved drugs for CMV retinitis are ganciclovir, foscarnet, cidofovir and fomivirsen (Vitravene). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Vitravene, or fomivirsen&#151;</I></B></FONT><FONT SIZE=2>In August&nbsp;1998, the FDA approved Vitravene to treat CMV retinitis in AIDS patients. Vitravene
is an antisense compound that we discovered and developed. Novartis Ophthalmics AG, the eye health unit of life sciences leader Novartis AG, and our worldwide distribution partner for this drug,
launched Vitravene in November&nbsp;1998. New anti-HIV
drugs, particularly protease inhibitors and combination treatment regimens, have prolonged survival in HIV-infected individuals. This has resulted in a decline in mortality from AIDS,
accompanied by a decline in the incidence of many opportunistic infections, including CMV retinitis. As a result, Novartis AG currently offers Vitravene on a limited basis. </FONT></P>

<P><FONT SIZE=2><B><I>Inflammatory Diseases  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development efforts in the therapeutic area of inflammatory diseases focus on identifying and developing antisense inhibitors to proteins such as
intercellular adhesion molecule 1, or ICAM-1 and another adhesion molecule called CD49d, which is a subunit of Very Late Antigen-4, or VLA-4. Researchers believe
that these proteins are involved in inflammatory diseases. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Alicaforsen (ISIS 2302&#151;</I></B></FONT><FONT SIZE=2>The most advanced compound in our inflammatory disease program selectively inhibits ICAM-1
gene expression. Over-expression of ICAM-1 occurs in a wide variety of inflammatory disorders, including inflammatory bowel disease. According to the Crohn's and Colitis
Foundation of America, up to one million people have inflammatory bowel disease, with diagnoses </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

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<P><FONT SIZE=2>evenly
split between Crohn's disease and ulcerative colitis, or UC. According to the European Federation of Crohn's and UC Associations, inflammatory bowel disease affects a similar number of people
in Europe. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><B><I>Ulcerative Colitis&#151;</I></B></FONT><FONT SIZE=2>UC is an inflammatory disease of the colon, a part of the large intestine. Inflammation and
ulceration of the innermost lining of the colon characterize UC. Symptoms typically include diarrhea, rectal bleeding and abdominal pain. In December&nbsp;2004, we released the results of three
Phase II studies of alicaforsen enema to treat patients with UC in which alicaforsen enema produced significant and long-lasting disease improvement, as measured by changes in Disease
Activity Index, or DAI, scores and other indicators of disease. In the Phase II studies alicaforsen enema outperformed both placebo and the enema standard of care. In particular, a substantial number
of patients treated with alicaforsen enema experienced mucosal healing, as well as decreases in rectal bleeding and in stool frequency, manifestations of the disease that cause considerable
discomfort, inconvenience and pain to patients. In all three trials, alicaforsen enema was well-tolerated and improved signs and symptoms of disease in ulcerative colitis patients. In
addition, data from a 2003 clinical trial for an enema formulation of alicaforsen demonstrated an improvement in clinical disease symptoms of up to nine months in patients with pouchitis. Pouchitis is
an ulcerative colitis-like inflammation of the surgically constructed internal pouch created in ulcerative colitis patients when their diseased colons are removed. We plan to find a strong
commercial partner for alicaforsen enema, while planning a Phase III program for the drug. </FONT></DD></DL>
</UL>
<UL>
<UL>

<P><FONT SIZE=2>Our
goals for 2005&nbsp;-&nbsp;2006 for alicaforsen enema for ulcerative colitis are to: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>meet
with the FDA to discuss Phase III development plans for the drug; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>identify
a marketing partner with late-stage development and commercial expertise, and work with that partner to develop and implement a successful Phase III
development program.
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2><B><I>Crohn's disease&#151;</I></B></FONT><FONT SIZE=2>Crohn's disease is a serious inflammatory disease that affects the entire digestive tract, unlike
UC which affects only the colon. A patient with Crohn's disease suffers chronic and often severe episodes of diarrhea, abdominal pain, rectal bleeding and fever. In December&nbsp;2004, we reported
the results of our Phase III clinical trials of alicaforsen in patients with Crohn's disease. In these trials alicaforsen did not demonstrate statistically significant induction of clinical remission
compared to placebo. As a result of these data, we will not invest further in the development of alicaforsen for Crohn's disease. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>ATL 1102&#151;</I></B></FONT><FONT SIZE=2>ATL 1102, formerly called ISIS 107248, is a second-generation antisense inhibitor of CD49d, which is a subunit of
Very Late Antigen-4, or VLA-4. Studies in animal models have demonstrated that inhibition of VLA-4 has a positive effect on a number of inflammatory diseases,
including multiple sclerosis. In December&nbsp;2001, we licensed ATL 1102 to ATL. Under our agreement with ATL, we completed the required preclinical studies for ATL 1102 and manufactured the drug
for human clinical trials at ATL's expense. ATL is responsible for the clinical development and the commercialization of the drug. In June&nbsp;2004, ATL announced the results of a
Phase I clinical trial of ATL 1102, in which the drug was well-tolerated. In December&nbsp;2004, ATL initiated a Phase IIa clinical trial of ATL 1102 in patients with multiple sclerosis.
In March&nbsp;2005, ATL announced that, although it and the trial investigators are confident that the current ATL 1102 Phase II trial is safe, in light of the recently announced safety issues
associated with one other VLA-4 inhibitor that works through a different mechanism, ATL decided to halt the current trial and convene an advisory group to consider the potential
development path for ATL 1102 which may include restarting a Phase II trial program in multiple sclerosis and exploring ATL 1102 as an inhaled asthma treatment. We plan to support ATL's
development efforts to determine the potential of ATL 1102 as an effective treatment for multiple sclerosis and asthma. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>ATL 1101</I></B></FONT><FONT SIZE=2>&#151;ATL 1101 is an antisense compound targeting Insulin-like Growth Factor-I Receptor, or
IGF-1R. Researchers believe that IGF-1R plays a pivotal role in the regulation of cell growth in psoriasis. Their research has demonstrated that antisense molecules delivered
by intra-dermal injection successfully inhibit production of IGF-1R and normalize the skin architecture in human psoriasis skin samples grafted onto mice. We plan to support
ATL's program to explore the activity of ATL 1101 in patients with psoriasis, which includes completing the ongoing study ATL is conducting. According to the National Psoriasis
Foundation, more than 4.5&nbsp;million people in the United States have psoriasis, which is a non-contagious disorder of the skin. Abnormal growth or overproduction of skin cells
characterizes psoriasis. </FONT></P>

<P><FONT SIZE=2><B><I>Metabolic Diseases  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are pursuing the discovery and development of antisense drugs for metabolic diseases such as diabetes and obesity. These chronic diseases affect millions of
people and there continues to be a significant need for new therapies for these patients. We believe that our second-generation antisense drugs will have properties that will make them attractive
therapies for metabolic diseases. According to the American Diabetes Association, diabetes affects more than 18&nbsp;million people, with type 2 diabetes constituting about 90&nbsp;percent of
those cases. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>ISIS 113715</I></B></FONT><FONT SIZE=2>&#151;ISIS 113715 is our second-generation antisense inhibitor of the PTP-1b gene for the treatment of type
2 diabetes. An antisense inhibitor of PTP-1b represents a new approach to the treatment of diabetes. For years, pharmaceutical companies interested in treating diabetes have actively
pursued phosphatases, such as PTP-1b, as targets in their traditional small molecule drug discovery efforts. However, due to structural similarities among closely related phosphatases, it
is often difficult to identify small molecule drugs with sufficient specificity to be safe. Antisense allows us to design very specific inhibitors to PTP-1b that do not inhibit other
phosphatases. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May&nbsp;2003, we initiated a Phase I clinical trial to assess the safety and pharmacokinetic profile of several doses of ISIS 113715 by parenteral administration in 20 healthy
volunteers. In September&nbsp;2003, we reported the results from this Phase I study, in which ISIS 113715 increased insulin sensitivity in normal volunteers. Further, subjects treated with ISIS
113715 did not experience hypoglycemia or excessively low blood sugar, which is an adverse effect observed with many currently available treatments for type 2 diabetes. Based on the results of this
Phase I study, we initiated a Phase II clinical trial to further evaluate the drug's ability to regulate blood sugar levels in patients with type 2 diabetes. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
goals for 2005-2006 for our ISIS 113715 clinical development program for type 2 diabetes are to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>demonstrate
safety of the drug as a single agent in patients with type 2 diabetes to support longer-term dosing;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>define
the optimal dose and schedule to support future clinical trials;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>advance
ISIS 113715 into additional clinical trials to evaluate longer-term dosing; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>explore
the drug in patients who are taking oral anti-diabetic therapies. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
development plans for 2005-2006 to meet these goals are to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>report
the results from our ongoing Phase II single agent trial in patients with type 2 diabetes;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>report
the results following 12 weeks of dosing from a single agent trial in patients with type 2 diabetes; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>initiate
dosing in patients with type 2 diabetes who are also taking oral anti-diabetic therapy. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

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<P><FONT SIZE=2><B><I>Cardiovascular Diseases  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are pursuing the discovery and development of antisense drugs for cardiovascular diseases such as high cholesterol. According to the American Heart
Association, cardiovascular disease is the leading cause of death in the United States. Researchers have shown a strong correlation between high cholesterol levels and subsequent cardiovascular
diseases. Statistics from the American Heart Association show more than 100&nbsp;million American adults have high cholesterol levels. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>ISIS 301012</I></B></FONT><FONT SIZE=2>&#151;ISIS 301012 is a second-generation compound that targets apoB-100, a molecule that has been of great
interest to the industry, yet has long been considered "undruggable" by traditional small molecule approaches. ApoB-100 is a protein that plays a pivotal role in the production of
low-density lipoprotein, or LDL, the "bad" cholesterol. In preclinical studies, ISIS 301012 reduced total cholesterol, very low-density lipoproteins, or VLDL, LDL, and
triglyceride levels, all of which are keys to managing heart disease. We initiated a Phase I study in late 2003 in volunteers with borderline elevated cholesterol. The goal of this initial study was
to measure the safety and pharmacokinetic profile of ISIS 301012, and its ability to reduce several components of cholesterol. In 2004, we announced preliminary data from this trial, which
demonstrated ISIS 301012 produced dose-dependent, rapid and prolonged reductions of its target, apoB-100, in LDL, in VLDL, and in total cholesterol levels in volunteers with
borderline elevated cholesterol. We have also demonstrated that an oral formulation of ISIS 301012 reduces cholesterol in animals. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
2005-2006, our goals for ISIS 301012 clinical development programs for lowering high cholesterol, both the subcutaneous injection and oral formulations, are to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>understand
the optimal dose and schedule for the drug as a single agent;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>prepare
to initiate combination studies with atorvastatin, and other drugs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>define
the oral bioavailability of ISIS 301012 and demonstrate reduction of its target, apoB-100, and cholesterol reduction in man;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>advance
ISIS 301012 into additional clinical trials to evaluate longer-term dosing; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>explore
other indications, such as apheresis, that may offer shortened routes to commercialization. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
development plans for 2005-2006 to meet these goals are to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>report
final results from our ongoing Phase I single agent study in normal volunteers with borderline elevated cholesterol at an appropriate scientific meeting;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>initiate
a Phase&nbsp;II trial to evaluate dose and dose schedule in patients with high cholesterol;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>initiate
a pharmacokintetic study to evaluate the addition of ISIS 301012 to statin therapy;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>initiate
a Phase 2 study in patients with high cholesterol who are also taking statins; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>initiate
a Phase I trial of the oral formulation of ISIS 301012 in volunteers with normal cholesterol levels. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2><B><I>Cancer  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, together with our partners, are pursuing the development of antisense drugs for the treatment of a variety of cancers. In clinical trials, we and our partners
have observed evidence of activity of our anti-cancer drugs. In addition, patients tolerated our compounds well, with none of the serious side effects, such as bone marrow or immune system
suppression, gastrointestinal distress or hair loss, associated with standard cancer chemotherapies. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>OGX-011&#151;</I></B></FONT><FONT SIZE=2>OGX-011, formerly called ISIS 112989, is a second-generation antisense inhibitor of clusterin,
which we are co-developing and commercializing with OncoGenex, a Canadian oncology-focused research and development company. We have designed OGX-011 to inhibit the secretory
protein clusterin, which acts as a cell-survival protein that is over-expressed in response to tumor killing strategies, like chemotherapy, hormone ablation and radiation
therapy. Based on analysis of human tumor tissue, clusterin is over-expressed in several cancers, including prostate, breast, renal, bladder, non-small cell lung and ovarian.
By inhibiting clusterin, clinicians may be able to enhance the effects of drug therapies in the treatment of these cancers. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
a Phase I trial evaluating OGX-011 in combination with hormone ablation therapy prior to surgical removal of the prostate, OGX-011 was
well-tolerated, achieved excellent drug concentration in its target tissue, the prostate, and produced up to a 91&nbsp;percent dose-dependent reduction of its target,
clusterin. In preclinical animal studies, scientists from both OncoGenex and Isis, in collaboration with the Prostate Center at Vancouver General Hospital, demonstrated that OGX-011
improved the potency of traditional chemotherapies more than ten-fold in prostate cancer, without compromising safety. These studies also demonstrated that OGX-011, when
combined with other cancer treatments in preclinical model systems, may significantly improve tumor reduction and delay disease progression in prostate, lung, bladder and renal cancer. These findings
support the continued development of OGX-011 in combination with standard chemotherapy and other agents. We plan to support OncoGenex's expansion of OGX-011 development into
additional cancer therapeutic areas through the completion of this second Phase I trial evaluating OGX-011 in combination with TAXOTERE in solid tumors, and with the initiation of Phase II
clinical trials in patients with lung, breast and prostate cancers in 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>LY2181308&#151;</I></B></FONT><FONT SIZE=2>We licensed our preclinical anti-cancer candidate, LY2181308, formerly ISIS 23722, to Lilly in 2002, as
part of the expansion of our Lilly antisense drug discovery research collaboration into cancer for which we earned $1.1&nbsp;million. Under the two-year agreement, we and Lilly
collaborated to discover antisense drugs to inhibit specific gene targets associated with cancer. The cancer collaboration built on the broad, strategic alliance the companies
forged in August&nbsp;2001, to among other things, discover antisense drugs in the areas of inflammatory and metabolic diseases. The compound targets survivin, which plays a role in cancer cell
death, or apoptosis. Survivin is one of the most highly overexpressed proteins in cancers. Our researchers and collaborators have shown that inhibiting expression of survivin by LY2181308 inhibits the
growth of cancer cells. Since normal cells in the body do not express survivin, we expect that this drug will have fewer side effects than traditional chemotherapy. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2003, we earned a $1.5&nbsp;million milestone from Lilly in the development of LY2181308. LY2181308 is the first compound from this partnership to advance to clinical trials. In
November&nbsp;2004, Lilly initiated Phase I clinical trials of LY218308 in cancer patients, for which we earned a second $1.5&nbsp;million milestone. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>LY2275796&#151;</I></B></FONT><FONT SIZE=2>LY2275796 is the second anti-cancer drug candidate we have licensed to Lilly and is currently in
preclinical studies. During 2004, we earned a $750,000 license fee for this second-generation antisense drug which targets eukaryotic initiation factor-4E, or eIF-4E, a protein
involved in tumor progression, angiogenesis and metastases, including breast, head and neck, prostate, lung, bladder, colon, thyroid and non-Hodgkin's lymphomas. Based on scientific
literature, there is a strong indication that eIF-4E may act as a critical "switch" in cancer progression. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2005&nbsp;-&nbsp;2006, we plan to support Lilly's ongoing anti-cancer antisense research and development programs through the progression of the above
Phase I trial of LY2181308 in patients with cancer and the continued preclinical development of LY2275796 for cancer. Further, we plan to support Lilly's oncology franchise by providing new antisense
drug candidates for licensing consideration by Lilly. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>ISIS 345794&#151;</I></B></FONT><FONT SIZE=2>ISIS 345794 is the latest compound to emerge from our cancer research program and is in preclinical development
for cancer. Signal Transducer and Activator of Transcription 3, or STAT-3 is a protein that regulates cell division and growth and prevents cell death. In preclinical studies, we have
demonstrated that antisense inhibition of STAT-3 significantly delayed tumor growth and increased the rate of cancer cell death in multiple cell and animal models of cancer. Based on these
findings, we selected ISIS 345794 for clinical development. </FONT></P>

<P><FONT SIZE=2><B><I>Recently Discontinued Products  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS 104838 produced positive disease responses in patients with rheumatoid arthritis, according to results of two Phase II studies. While we are encouraged by
the performance of this drug, in light of the strong competition in this market and the significant investment required to bring the first oral anti-TNF product to market, we elected to
discontinue development of this drug. In addition, we have discontinued development of ISIS 14803, a first-generation drug for the treatment of hepatitis C. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2004, we reported the results of a second Phase III clinical trial of Affinitak in combination with Gemzar and cisplatin in patients with non small cell lung cancer, or
NSCLC. Findings from this trial, which was sponsored by Lilly, were similar to the results of the initial Isis-sponsored Phase III study of Affinitak for NSCLC, in which Affinitak failed
to demonstrate improved survival sufficient enough to support an NDA filing. As a result of these trials, we will not invest further in the development of Affinitak. </FONT></P>


<P><FONT SIZE=2><B>Research Programs  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We combine our core technology programs in medicinal chemistry, RNA biochemistry, and molecular and cellular biology with molecular target-focused drug discovery
efforts to design drug candidates. The goal of our target-based research programs is to identify antisense and small molecule drug candidates to treat diseases for which there are substantial markets
and for which there is a need for better drugs. In addition, our research programs focus on identifying next-generation compounds to serve as backup compounds to our current products in
development and to our development candidates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
core technology programs can support multiple target-based antisense research programs without significantly increasing costs. Through these programs, we can efficiently explore
numerous disease targets and identify lead compounds to advance into preclinical development. We are currently pursuing antisense drug discovery programs focused on various cardiovascular, metabolic
and inflammatory disease targets, and cancer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are pursuing three early-stage antisense mechanisms, including RNA interference, or RNAi, micro-RNA, and alternative splicing, through research collaborations and
partnerships like those we have with Ercole and Alnylam. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RNAi
is an antisense mechanism that involves using a small interfering RNA, or siRNA, as a method to target an mRNA sequence. With siRNA, the cell recruits a protein group called RISC to
prevent the
production of a disease-causing protein. We have a strong intellectual property position in RNAi methodology and are pursuing opportunities to license these patents to companies specializing in RNA
interference as a therapeutic method. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Micro-RNAs
are an emerging class of drug targets and a new area for drug discovery. Micro-RNAs are small RNA molecules that appear to have critical functions in
controlling the process of gene expression. Micro-RNAs can serve as drug targets or as drugs themselves. Researchers estimate that there are approximately 250-300 known
micro-RNA molecules in humans. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Modulation
of alternative splicing seeks to control the process by which a single gene can lead to several proteins. To be converted into proteins, genes must be initially copied into a
pre-mRNA. Pre-mRNA often contains extra sequence information that must be removed prior to translation into the protein. This process is called splicing. Using antisense
technology, we have been able to control how these stretches of RNA are spliced back together. This provides another way to control the production of a disease causing protein. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to the development of TIGER, our Ibis division focused on discovering novel small molecule antibacterial drugs. We expect to allocate limited resources to advance this technology
once we complete our work under the USAMRIID contract in the first quarter of 2005. Our goal is to secure a partner for this program. </FONT></P>

<P><FONT SIZE=2><B>Collaborative Arrangements and Licensing Agreements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our strategy is to use alliances with other companies and equity-based financing to increase our financial resources, reduce risk, and retain an appropriate level
of ownership of products currently in development. Through alliances with major pharmaceutical companies and biotechnology companies, we can obtain funding, expand existing programs and gain
additional expertise in developing and marketing products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Antisense
technology allows us to repeatedly produce more drug candidates than we can afford to develop on our own. As a result, we have extended our licensing partnerships to include
our satellite company strategy in which we provide our expertise and intellectual property position in RNA-based therapeutics to industry partners that are interested in developing
RNA-based therapeutics. Because these companies work closely together with us, with
the common goals of advancing the technology and/or pipeline, we sometimes refer to these companies as satellite companies. These partnerships allow us to benefit from our partners' expertise and
highly focused research efforts, while our partners benefit from our experience in RNA-based drug discovery and development and access to our intellectual property. In return for providing
companies with access to our technology, we receive an ownership interest in the resulting products and/or in the companies. Through these relationships we are expanding the reach and potential of
antisense therapeutics and participating in the success of multiple companies and products. This provides us with the opportunity to create a much broader antisense pipeline than we could afford to
develop on our own, while minimizing our financial obligations. We have implemented this integral component of our strategy through our partnerships with Alnylam, ATL, Ercole, OncoGenex, Santaris, and
Sarissa. </FONT></P>


<P><FONT SIZE=2><B><I>2004 and Recent Collaboration and Licensing Highlights  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are focused on establishing new partnerships and on advancing and building upon existing relationships. We currently have agreements with more than a dozen
partners. These span the three key areas of our business: antisense drug discovery and development, our Ibis division, and our intellectual property estate. The following is a list of our
collaboration and licensing highlights for 2004 and early 2005. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
formed a strategic alliance with Alnylam to accelerate the development and commercialization of RNAi therapeutics. We earned a $5.0&nbsp;million technology access fee
and a $500,000 payment from our participation in Alnylam's partnering program;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
received a two-year contract providing up to $19.5&nbsp;million from DARPA through a contract with SAIC to further the development of our TIGER system to
identify infectious agents in biological warfare attacks;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
were granted three new government contracts valued at up to $10.0&nbsp;million for the continued development of our TIGER technology;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
earned $4.0&nbsp;million in milestone payments from Eyetech associated with their filing of an NDA for Macugen and receipt of marketing clearance for the drug, and sold
a portion of our royalty rights in Macugen to DRC in exchange for aggregate payments of $24.0&nbsp;million over the next three years; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
earned a $1.5&nbsp;million Phase I clinical milestone from Lilly for LY2181308, an inhibitor of survivin;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
earned a $750,000 payment from Lilly for the license of LY2275796, a cancer drug that targets eIF-4E;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
extended our anti-cancer antisense drug discovery collaboration with Lilly. This oncology relationship builds on a broad, ongoing strategic alliance
previously established by Isis and Lilly to discover antisense drugs in the areas of inflammatory and metabolic diseases;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
jointly developed a new high performance solid support for the manufacture of oligonucleotides with Nitto Denko Corporation of Osaka, Japan. Solid support is the base
structure used in the synthesis of oligonucleotides, both antisense, including RNA and DNA-based and RNAi, and aptamer drugs and represents a substantial portion of the cost to manufacture
these drugs. The new solid support has the potential to decrease manufacturing costs of oligonucleotide-based drugs, including antisense;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
acquired Elan Corporation plc's minority interest in Orasense and HepaSense, joint ventures arising out of prior collaborations between Isis and Elan, and eliminated all
future royalties to Elan related to the oral delivery platform developed within the Orasense collaboration and to ISIS 14803;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
expanded our strong intellectual property position in RNA-based drug discovery by licensing core intellectual property regarding all therapeutic uses of miRNA
from the Max Planck Society;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
licensed an anti-cancer antisense drug to Sarissa,&nbsp;Inc., in exchange for a $1.0&nbsp;million represented by a debt instrument which will convert into
Sarissa stock upon Sarissa's successful completion of a venture capital financing; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
broadened our antisense drug development partnership with Oncogenex to allow for the development of two additional second-generation antisense anti-cancer
drug candidates. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B><I>Eli Lilly and Company  </I></B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2001, we entered into a broad strategic relationship with Lilly, including four key components: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Lilly
purchased $75.0&nbsp;million of our common stock at $18 per share.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
licensed to Lilly rights to Affinitak, which Lilly has decided to discontinue funding.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>We
initiated with Lilly a four-year antisense drug discovery collaboration in the areas of metabolic and inflammatory diseases and a related gene
functionalization and target validation collaboration to determine the function of up to 1,000 genes. Key achievements and developments under this collaboration include:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
2002, Lilly and we expanded our antisense drug discovery collaboration to include oncology and the license of LY2181308, our antisense inhibitor of survivin for which we
earned a $1.1&nbsp;million license fee. Under the two-year agreement, we and Lilly collaborated to discover antisense drugs to inhibit specific gene targets associated with cancer. The
expanded collaboration focused initially on several antisense preclinical compounds, including LY2181308, directed at cellular regulators of cancer cell death, or apoptosis.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
April&nbsp;2003, we earned a $1.5&nbsp;million milestone from Lilly in the development of LY2181308, the antisense inhibitor of survivin, as part of the research
collaboration oncology expansion. LY2181308 is the first compound from the partnership selected by Lilly for clinical development. In November&nbsp;2004, Lilly initiated Phase I clinical trials of </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

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<P><FONT SIZE=2>LY218308
in cancer patients, marking a significant milestone in the partnership and triggering a $1.5&nbsp;million milestone payment from Lilly to us. Our collaboration with Lilly also may generate
additional milestone payments aggregating up to $25.0&nbsp;million based on LY2181308 achieving specified regulatory and commercial milestones. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
July&nbsp;2003, we expanded the cancer research component of our antisense drug discovery collaboration with Lilly to include multiple antisense mechanisms, such as
RNAi and alternative splicing, as well as third generation antisense chemistries. We are currently jointly developing follow-on drugs to LY2181308 that work through an RNAi mechanism and
that use proprietary Isis chemistries.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
May&nbsp;2004, Lilly and we announced the extension of our antisense drug discovery collaboration in cancer. During this extension, Isis and Lilly will continue to
characterize and develop RNase H, siRNA, and splicing modulating inhibitors for the treatment of cancer using advanced generation chemistries. An important component of this extension will be the
exploration of potential new anti-cancer drug targets using RNA-directed technologies.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
September&nbsp;2004, Lilly licensed from us LY2275796. This second-generation antisense anti-cancer drug candidate targets eIF-4E. We earned a
$750,000 payment from Lilly for the license. LY2275796 is the second compound from the partnership to be selected by Lilly for clinical development. Our collaboration with Lilly also may generate
additional milestone payments aggregating up to $20.3&nbsp;million based on LY2275796 achieving specified regulatory and commercial milestones.
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Lilly
committed to lend us, interest-free, up to $100.0&nbsp;million over a four-year period to fund our obligations under the research
collaboration. This loan comes due in August&nbsp;2005. We can repay this loan at our option in either cash or our common stock, at a fixed conversion price of $40 per share. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
date, Lilly has paid or committed to pay us $292.9&nbsp;million in funding through 2005, including the $100.0&nbsp;million loan, the $75.0&nbsp;million equity investment, the
$25.0&nbsp;million in Affinitak up-front license fees, reimbursement for Affinitak development costs and research collaboration license fees and milestones. Of this $292.9&nbsp;million
we had collected $287.9&nbsp;million as of December&nbsp;31, 2004. Assuming the success of multiple products from our collaboration with Lilly, we have the opportunity to earn additional future
milestones and royalties from Lilly that could be substantial to us. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of our relationship with Lilly, in 2003, we upgraded and expanded our manufacturing facility, including the addition of a new state-of-the-art
manufacturing suite. Lilly provided us with $21.2&nbsp;million in funding to build the new suite. We can use this facility to manufacture drugs for ourselves and our partners. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
relationship with Lilly has historically provided several revenue sources, including research funding related to their $100.0&nbsp;million research loan to us, development
milestones similar to the milestones for LY2181308 and LY2275796, and revenue related to Affinitak. During 2004, 2003 and 2002, we generated revenue from our relationship with Lilly totaling
$15.7&nbsp;million, $30.9&nbsp;million and $45.4&nbsp;million, respectively, which comprised 37%, 62%, and 57%, respectively, of our total revenue during those same periods. Our current
collaboration with Lilly expires in August&nbsp;2005. Consequently, we anticipate our revenue from Lilly will decrease in 2005. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2><B><I>Antisense Drug Discovery Collaborations  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Singapore Economic Development Board  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2003, we received a grant of up to $8.0&nbsp;million over three years from the Singapore Economic Development Board, or EDB, which was
intended to fund, in part, the broadening of two of our RNA-based drug discovery and development programs: micro-RNA drug discovery and antisense drug discovery targeting the
coronavirus associated with SARS. In connection with this grant, we established Isis Pharmaceuticals Singapore Pte&nbsp;Ltd, a wholly-owned subsidiary of Isis Pharmaceuticals,&nbsp;Inc. As part of
our strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to continue the development of
antisense technology, we decided to close our research and development laboratory in Singapore during the first quarter of 2005 and terminate our agreement with the EDB. To date, we have received
$1.5&nbsp;million in cash payments under our EDB grant and do not anticipate receiving any additional payments under the grant. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Industrial and Technology Research Institutes of Taiwan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2003, we initiated a collaboration with ITRI to identify antisense candidates targeting the coronavirus associated with SARS. We conducted the
research in exchange for an upfront payment of $1.0&nbsp;million, milestone payments, and the potential for future funding. In December&nbsp;2003, we achieved two milestones in our antisense drug
discovery partnership with ITRI, for which we received a total of $1.0&nbsp;million. The milestones related to the identification of second-generation antisense drugs that inhibit SARS virus
replication and the successful completion of preclinical studies evaluating aerosol and parenteral delivery of antisense drugs as specified under the agreement. This collaboration has ended in
accordance with its terms. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Amgen  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, we entered into a three-year collaboration with Amgen to discover new antisense drugs. In December&nbsp;2004, this
collaboration with Amgen ended in accordance with its terms. </FONT></P>

<P><FONT SIZE=2><B><I>Satellite Company Collaborations  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Sarissa,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2005, we licensed an anti-cancer antisense drug to Sarissa,&nbsp;Inc., a biotechnology company emerging from the University of
Western Ontario. The drug is an antisense inhibitor of thymidylate synthase, or TS, a well-known drug target that protects cancer cells from the effects of several chemotherapy treatments.
In preclinical studies, antisense inhibition of
TS suppressed human tumor cell growth and overcame tumor cell resistance to marketed TS-targeted drugs. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of the agreement, Sarissa paid us a $1.0&nbsp;million upfront fee in exchange for the exclusive, worldwide license to the TS antisense drug. Sarissa paid the upfront
fee with a debt instrument, which will convert into Sarissa stock upon Sarissa's successful completion of a venture capital financing. Sarissa will also pay us milestone payments totaling up to
$5.5&nbsp;million for key clinical and regulatory achievements and royalties on any product sales. Sarissa will be solely responsible for preclinical and clinical development of the drug. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Alnylam Pharmaceuticals,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, we entered into a strategic alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of the agreement, we
exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5.0&nbsp;million
technology access fee, participation in fees for </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>Alnylam's
partnering programs, as well as future milestone and royalty payments from Alnylam. For each of these drugs, the potential milestone payments total $3.4&nbsp;million and are payable upon
the occurrence of specified development and regulatory events. We retained rights to a limited number of RNAi therapeutic targets and all rights to single-stranded RNAi therapeutics. In addition,
Alnylam and we will share the proceeds of any licenses Alnylam grants under its previously announced Interfe</FONT><FONT SIZE=2><I>Rx</I></FONT><FONT SIZE=2> program that include sublicenses to our
patents. We agreed to provide Alnylam with access to our resources for development and commercialization of RNAi therapeutics, including process development, bioanalytic methods, quality control and
manufacturing. We also made a $10.0&nbsp;million equity investment in Alnylam. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
turn, Alnylam nonexclusively licensed us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize
single-stranded RNAi therapeutics and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of
therapeutic targets on either an exclusive or co-exclusive basis depending on the target. If we develop or commercialize an RNAi-based drug using Alnylam's technology, we will
pay Alnylam milestones and royalties. For each of these drugs, the potential milestone payments total $3.4&nbsp;million and are payable upon the occurrence of specified development and regulatory
events. As of December&nbsp;31, 2004, we did not have an RNAi-based drug in clinical development. As part of the collaboration, each party granted the other party a nonexclusive cross
license to its respective patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for microRNA therapeutics. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Alnylam alliance provides us with an opportunity to realize substantial value from our pioneering work in antisense mechanisms and oligonucleotide chemistry and is an example of our
strategy to participate in all areas of RNA-based drug discovery. For example, in the second quarter of 2004, we earned a $500,000 license fee from Alnylam related to Alnylam's alliance
with Merck. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September&nbsp;2004, we recorded a non-cash loss on investment of $5.0&nbsp;million related to the impairment of our equity investment in Alnylam. The loss on
investment reflected a decrease in the market value of Alnylam's stock in 2004, which Isis believes was primarily a result of financial market conditions related to biotechnology companies. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2004, we and Alnylam expanded our strong intellectual property positions in RNA-based drug discovery by licensing core intellectual property regarding all
therapeutic uses of microRNA from the Max Planck Society. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, we generated revenue from our relationship with Alnylam totaling $5.5&nbsp;million, or 13%, of our total revenue. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Ercole Biotech,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2003, we and Ercole initiated a multi-year collaboration to discover antisense drugs that regulate alternative RNA splicing. As part of
the collaboration, we cross-licensed our respective splicing-related intellectual property. We are combining our alternative splicing expertise with Ercole to discover antisense drugs that regulate
alternative RNA splicing. As part of this collaboration, we granted Ercole a license to our Bcl-x molecule and certain of our chemistry patents. In addition, we took an equity ownership
position in Ercole, with the initial funding in the form of convertible debt, which the companies anticipate will convert into securities that Ercole issues in its next venture capital financing. We
also have the option to make an additional equity investment in Ercole. Pursuant to the terms of a Note and Warrant Purchase Agreement, during 2003 and early 2004, we made cash payments to Ercole of
$500,000 and $250,000, respectively, in exchange for a convertible promissory note. We expensed the payments when made. The Note is secured by all of Ercole's assets, including intellectual property
and licenses. The Note will convert into securities that Ercole issues in a qualified financing, as defined by the agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
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<UL>

<P><FONT SIZE=2><I> Antisense Therapeutics Limited  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, we licensed ATL 1102, formerly ISIS 107248, to ATL, an Australian company publicly traded on the Australian Stock Exchange. We were
responsible for completing the required preclinical studies for ATL 1102 and for manufacturing the drug for human clinical trials at ATL's expense. ATL agreed to undertake the future
clinical development and commercialization of the drug. In June&nbsp;2004, ATL announced the results of a Phase I clinical trial of ATL 1102, in which ATL 1102 was well-tolerated. In
December 2004, ATL initiated a Phase&nbsp;IIa clinical trial of ATL&nbsp;1102 in patients with multiple sclerosis. In March&nbsp;2005, ATL announced that, although it and the trial investigators
are confident that the current ATL 1102 Phase II trial is safe, in light of the recently announced safety issues associated with one other VLA-4 inhibitor that works through a different
mechanism, ATL decided to halt the current trial and convene an advisory group to consider the potential development path for ATL 1102, which may include restarting a Phase II trial program for
multiple sclerosis and exploring ATL 1102 as an inhaled asthma treatment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ATL
is also developing ATL 1101, an antisense compound targeting IGF-1R for the treatment of psoriasis. ATL recently initiated a Phase I study in patients with psoriasis. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we are participating with ATL in a five-year antisense drug discovery and development collaboration. ATL pays us for access to our antisense expertise and for
research and manufacturing services we may provide them during the collaboration. Additionally, ATL is obligated to pay us royalties on any antisense drugs discovered and developed within the
partnership. We currently own approximately 11% of ATL's equity and hold options for additional shares. If all of ATL's outstanding options, including ours, were
exercised, our ownership in ATL would be approximately 14%. </FONT></P>

<UL>

<P><FONT SIZE=2><I> OncoGenex Technologies&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2001, we established a drug development collaboration with OncoGenex Technologies&nbsp;Inc., a Canadian oncology-focused research and
development company, to co-develop and commercialize OGX-011, formerly ISIS 112989, an anti-cancer antisense drug candidate. We share in the costs of developing
OGX-011. In exchange, we share in any revenue generated by OncoGenex for OGX-011. OGX-011 combines OncoGenex's proprietary antisense position in inhibitors to the
target clusterin, with our proprietary second-generation antisense chemistry. We conducted preclinical toxicology and pharmacokinetic studies of OGX-011 during 2002. We also manufactured
OGX-011 for preclinical and Phase I/II studies. OncoGenex has responsibility to perform Phase I clinical trials to assess the safety of OGX-011 in combination with hormone
ablation therapy in men with localized prostate cancer and to perform Phase I/II clinical trials in combination with standard chemotherapy in patients with solid tumors known to express clusterin,
including
non-small cell lung, prostate, breast, renal, and ovarian cancers. In a Phase I trial evaluating OGX-011 in combination with hormone ablation therapy prior to surgical removal
of the prostate, OGX-011 was well-tolerated, achieved excellent drug concentration in its target tissue, the prostate, and produced up to a 91&nbsp;percent
dose-dependent reduction of its target, clusterin. In April&nbsp;2003, OncoGenex and we initiated a second Phase I/II trial to evaluate OGX-011 in combination with TAXOTERE
in various solid tumors. OGX-011 was our first second-generation antisense anti-cancer drug in clinical trials. We plan to support OncoGenex's expansion of OGX-011
development into additional cancer therapeutic areas through the completion of this second Phase I trial evaluating OGX-011 in combination with TAXOTERE in solid tumors, and with the
initiation of Phase II clinical trials in patients with lung, breast and prostate cancers. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September&nbsp;2003, we and OncoGenex expanded our antisense drug development partnership to include the development of the second-generation antisense anti-cancer drug
candidate, OGX-225. OncoGenex has responsibility for the preclinical and clinical development of the drug. OncoGenex issued us OncoGenex securities as payment for an upfront fee. In
addition, OncoGenex agreed to </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>provide
to us milestone payments totaling up to $3.5&nbsp;million for key clinical and regulatory achievements and to pay us royalties on product sales. As of December&nbsp;31, 2004, OncoGenex had
not triggered any of these milestone payments related to OGX-225. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January&nbsp;2005, we broadened our antisense drug development partnership with Oncogenex to allow for the development of two additional second-generation antisense
anti-cancer drug candidates. Under the terms of the agreement, OncoGenex will be responsible for the preclinical and clinical development of the drug. OncoGenex agreed to pay us an upfront
fee, milestone payments for key clinical and regulatory achievements, and royalties on future product sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2004, our ownership interest in OncoGenex was less than 10%. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Santaris Pharma A/S (formerly Pantheco A/S)  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;1998 and September&nbsp;2000, we entered into license agreements with Santaris, formerly Pantheco. We amended the agreements in
May&nbsp;2003. Under the terms of the amended and restated license agreement, we licensed our novel antisense chemistry, Peptide Nucleic Acid, or PNA, to Santaris on a limited exclusive basis to
develop products. The license restricts Santaris to a limited
number of molecular targets that are subject to our approval. Santaris has agreed to pay us royalties on any products developed under the license. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of our original license agreements with Pantheco, we received shares of Pantheco common stock. In May&nbsp;2003, Pantheco and Cureon A/S merged to form Santaris. Prior to the
merger, we purchased additional shares of Pantheco for $55,000 as a result of antidilution provisions related to Pantheco's stock. After the merger and as of December&nbsp;31, 2004, our ownership
interest in Santaris was less than 10%. </FONT></P>

<P><FONT SIZE=2><B><I>Antisense Commercialization  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Novartis Ophthalmics AG  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1997, we entered into an agreement with Novartis Ophthalmics AG, formerly CIBA Vision Corporation, granting them exclusive worldwide distribution rights for
Vitravene, an antisense compound that we discovered and developed. The terms of the agreement provided for us to receive $20.0&nbsp;million in pre-commercial fees and milestones. As of
December&nbsp;31, 2001, we had received the full $20.0&nbsp;million of these pre-commercial fees and milestones. In August&nbsp;1998, the FDA approved Vitravene to treat CMV
retinitis in AIDS patients. Novartis Opthalmics AG launched Vitravene in November&nbsp;1998. Due to the low incidence of CMV retinitis among patients with AIDS, Novartis AG currently offers
Vitravene on a limited basis. </FONT></P>

<P><FONT SIZE=2><B><I>Ibis Collaborations  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To develop the TIGER technology and applications, our Ibis division has received contracts from a number of government agencies, including DARPA, the NIAID, part
of the NIH, the CDC and the FBI. Each of these agencies represents a significant source of funding for our TIGER program. To date, we have earned $40.1&nbsp;million in revenue under our government
contracts and grants. Also, we have approval to invoice our government partners an additional $8.6&nbsp;million under our existing contracts and grants. We may receive continued approval to invoice
our government partners under these contracts based upon a variety of factors, including the accomplishment of program objectives and the exercise of additional contract options by the contracting
agencies. In addition, these agencies may terminate these contracts and grants at their convenience at any time, even if we have fully performed our obligations. Consequently, we may never receive the
full amount of the potential value of these awards. Our Ibis division has received contracts and grants from numerous government agencies valued at up to $63.2&nbsp;million. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2004, we received three new government contracts valued at up to $10.0&nbsp;million for the continued development of our TIGER system. A key highlight of these new contracts was
funding from the NIAID to develop a TIGER application aimed at ensuring vaccine safety. Currently, there are few tests available that can specifically address safety issues unique to cell substrates
used in vaccine manufacturing, such as the identification of unknown or novel microbes that have the potential to contaminate vaccine cell lines and substrates. Successful development of an
application to simultaneously identify a broad array of infectious agents in vaccine cell substrates would create a new commercial prospect for our TIGER system. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
receive funding from DARPA through a subcontract with SAIC, on a multi-year project for the ongoing development of TIGER. This project combines our expertise in microbial
genome sequence analysis and advanced mass spectrometry technology with SAIC's advanced signal processing capabilities. In March&nbsp;2004, we entered into a two-year contract with SAIC
that provides for up to $19.5&nbsp;million in funding by DARPA. During 2004 and 2003, revenue from SAIC comprised 18% and 16%, respectively, of our total revenue. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September&nbsp;2003, we received a three-year grant for up to $6.0&nbsp;million from the CDC to develop and apply our TIGER technology to the surveillance of human
infectious disease in the United States. Using the grant from the CDC, we expect to develop and provide TIGER technology for CDC projects focused on emerging human infectious disease. </FONT></P>


<P><FONT SIZE=2><B><I>Intellectual Property Licensing Agreements  </I></B></FONT></P>

<P><FONT SIZE=2><B><I>In-Licensing Arrangements  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Hybridon,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2001, we entered into an agreement with Hybridon under which we acquired an exclusive license to all of Hybridon's antisense chemistry and delivery
patents and technology. Hybridon retained the right to practice its licensed antisense patent technologies and to sublicense it to collaborators under certain circumstances. In addition, Hybridon
received a non-exclusive license to our suite of RNase H patents. In exchange for the license to Hybridon's antisense patents, we paid $15.0&nbsp;million in cash and agreed to pay
Hybridon $19.5&nbsp;million in our common stock before May&nbsp;2003. In return for access to our patents, Hybridon agreed to pay us $6.0&nbsp;million in Hybridon common stock before
May&nbsp;2004. In September&nbsp;2001 and October&nbsp;2001, we issued to Hybridon 357,143 shares of our common stock valued at $5.0&nbsp;million and 500,000 shares of our common stock valued
at $10.0&nbsp;million, respectively. In May&nbsp;2002, Hybridon issued to us 1,005,499 shares of its common stock valued at $1.3&nbsp;million and paid us $700,000 in cash. In August&nbsp;2002,
Hybridon and we cancelled the remaining reciprocal financial obligations related to this agreement. The cancellation of the obligations resulted in a decrease to our carrying value for the license in
the amount of $500,000. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
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<UL>

<P><FONT SIZE=2><I> Molecular Biosystems,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2001, we amended a non-exclusive Patent License Agreement, which we entered into with Molecular Biosystems,&nbsp;Inc. in
September&nbsp;1992. The amendment provided us with a fully paid-up license to certain patents and patent applications in exchange for a one-time payment to Molecular
Biosystems of $1.0&nbsp;million. Molecular Biosystems has since been acquired by Alliance Pharmaceuticals,&nbsp;Inc. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Integrated DNA Technologies,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;1999, we further solidified our intellectual property leadership position in antisense technology by licensing certain antisense patents from IDT,
a leading supplier of antisense inhibitors for research. The patents we licensed from IDT are useful in functional genomics and in making certain antisense drugs. In December&nbsp;2001, we expanded
this license agreement to allow us to exclusively sublicense this intellectual property for functional genomics purposes. Under the license, we have paid IDT $4.2&nbsp;million through
December&nbsp;31, 2004 and expect to pay IDT an aggregate of $700,000 in 2005 for the license. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, in December&nbsp;2001 we established a long-term research-scale antisense inhibitor supply agreement with IDT. In this supply agreement IDT agreed to
manufacture research-scale antisense inhibitors and research reagents to our specifications. We paid IDT $5.0&nbsp;million toward our future purchase of antisense inhibitors. During the fourth
quarter of 2004, we recorded a non-cash charge of $4.2&nbsp;million to write off the unused portion as part of our restructuring activities. </FONT></P>

<P><FONT SIZE=2><B><I>Out-Licensing Arrangements; Royalty Factoring Agreements  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Roche Molecular Systems  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2000, we licensed some of our novel chemistry patents to Roche, a business unit of Roche Diagnostics, for use in the production of Roche's
diagnostic products. The royalty-bearing license grants Roche non-exclusive worldwide access to some of our proprietary chemistries, in exchange for initial and ongoing payments from Roche
to us. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Eyetech Pharmaceuticals,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, we licensed to Eyetech, a publicly-held company, certain of our patents necessary for Eyetech to develop, make and
commercialize Macugen, a non-antisense compound intended for use in the treatment of ophthalmic diseases. Eyetech paid us a $2.0&nbsp;million upfront fee and agreed to pay us milestone
and royalty payments in exchange for non-exclusive, worldwide rights to the intellectual property licensed from us. In December&nbsp;2002, Eyetech entered into an agreement with Pfizer
to develop and commercialize Macugen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, we earned from Eyetech $4.0&nbsp;million in milestones associated with the filing of an NDA and FDA approval for Macugen for the treatment of wet age-related
macular degeneration. Our license with Eyetech also may generate additional milestone payments aggregating up to $2.8&nbsp;million based on achieving specified regulatory milestones with respect to
the use of Macugen for each additional therapeutic indication. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Drug Royalty Corporation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, we sold a portion of our royalty rights in Macugen to Drug Royalty USA,&nbsp;Inc., or DRC, in exchange for aggregate payments of
$24&nbsp;million over the next three years. Under the terms of the agreement, we and DRC will share the royalty rights on Macugen through 2009. After 2009, we retain all royalties for Macugen under
our Eyetech agreement. Under the agreement, through 2009 DRC will receive royalties on the first $500&nbsp;million of annual sales of Macugen. We and DRC will each </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

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<P><FONT SIZE=2>receive
50&nbsp;percent of royalties on annual sales between $500&nbsp;million and $1&nbsp;billion. We retain 90&nbsp;percent of all royalties on annual sales in excess of $1.0&nbsp;billion
and 100&nbsp;percent of all royalties after 2009. We have retained all milestones payable to Isis by Eyetech under the license agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the sale, we agreed to pay DRC liquidated damages if any one of a defined set of defaults occurs. The amount of liquidated damages will be calculated such that DRC will
receive a ten per cent per annum return, compounded quarterly on the total of all purchase price payments made by DRC to us through the default date minus the total of any royalties received by DRC
through the default date. In addition, DRC may withhold any installment of the purchase price if immediately prior to such payment, we fail to meet a minimum liquidity requirement equal to the then
outstanding balance on our loan with Silicon Valley Bank; plus the potential amount of liquidated damages, assuming that DRC has paid the impending purchase price installment; plus our cash burn over
the most recent three months. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
collateral for our obligations under the sale agreement, we granted DRC a first priority security interest in the patents licensed by us to Eyetech under the license agreement and in
the license agreement itself. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Dharmacon  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004, we entered into a patent license agreement with Dharmacon, a wholly owned subsidiary of Fisher Scientific International,&nbsp;Inc. In order
to sell chemically modified RNA for research purposes, Dharmacon licensed from us certain chemistry and method-of-use patents in return for an upfront licensing fee and
royalties on reagent sales. Through this agreement, we are able to provide access to our technology to a wide array of academic labs, research institutes and companies practicing this technology while
participating financially in Dharmacon's success. </FONT></P>


<P><FONT SIZE=2><B>Manufacturing  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, except for small quantities, it was generally expensive and difficult to produce chemically modified oligonucleotides, like the antisense drugs we
use in our research and development programs. As a result, we have dedicated significant resources to develop ways to improve manufacturing capacity. Since we can use variants of the same nucleotide
building blocks and the same type of equipment to produce our oligonucleotide compounds, we found that the same techniques we used to efficiently manufacture one oligonucleotide drug could help
improve the manufacturing processes for many other oligonucleotide drugs. By developing several proprietary chemical processes to scale up our manufacturing capabilities, we have greatly reduced the
cost of producing oligonucleotide compounds. For example, we have significantly reduced the cost of raw materials through improved yield efficiency, while at the same time increasing our capacity to
make the compounds. Through both our internal research and development programs and collaborations with outside vendors we may achieve even greater efficiency and further cost reductions. For example,
in November&nbsp;2004, we and Nitto Denko Corporation announced that we have jointly developed a new high performance solid support for the manufacture of oligonucleotides. The new solid support has
the potential to decrease manufacturing costs because it is less expensive than currently used solid supports and it has the potential to increase yield, thereby further reducing costs. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of our relationship with Lilly, in 2002 we upgraded and expanded our manufacturing facility, including the addition of a new state-of-the-art
manufacturing suite. Lilly provided us with $21.2&nbsp;million in funding to build the new suite. We can use this facility to manufacture drugs for ourselves and our partners. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have contractual obligations to manufacture clinical trial materials and/or commercial supply for ATL, Lilly, Novartis and OncoGenex. We believe we have sufficient manufacturing
capacity to meet our current and future obligations under existing agreements with our partners for commercial, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

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<P><FONT SIZE=2>research
and clinical needs as well as meet our current internal research and clinical needs. We believe that we have, or will be able to develop or acquire, sufficient supply capacity to meet our
anticipated needs. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we will be able to manufacture antisense compounds at commercially
competitive prices. </FONT></P>

<P><FONT SIZE=2><B>Patents and Proprietary Rights  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success will depend, in part, on our ability to obtain patent protection for our products in the United States and other countries. We file applications, as
appropriate, for patents covering our products and processes. As of March&nbsp;3, 2005, we owned or had exclusively licensed more than 1,500 issued patents worldwide. Patents issued to us, applied
for by us or exclusively licensed to us cover the following types of inventions, processes and products: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for the use of RNA/DNA oligonucleotides and other antisense inhibitors, in gene functionalization and target validation, including chemistries, antisense
inhibitor designs called "motifs", methods of use of antisense inhibitors and mechanisms of action by which antisense inhibitors inactivate an RNA target;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Composition
of matter claims to core chemistries for chemically modifying oligonucleotides, which cover our rights to the building blocks of our compounds;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Composition
of matter claims to antisense compounds targeted to particular RNA target sequences, which cover our drugs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Use
claims for using oligonucleotides targeted to particular disease targets, which cover our right to use oligonucleotide-based drugs to treat specific diseases or modulate
expression of the target gene;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
and composition of matter claims for the formulation and delivery of therapeutic oligonucleotides, which cover our pharmaceutical formulations of our drugs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for the manufacture of oligonucleotides, which cover our new, improved and/or more cost effective ways to manufacture oligonucleotides;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Composition
of matter claims to RNA structural elements, which cover our rights for discovery of small molecules that bind to these RNA structural elements;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for analyzing the interaction of small molecules with RNA, which cover our novel discovery methods using mass spectrometry to analyze the interaction of small
molecules with RNA;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for optimizing the interaction of drug substances with their target molecules, which cover our mass spectrometry-based structural activity relationship
discovery methods;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for identifying unknown bioagents utilizing mass-spectrometry-based analyses; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Method
claims for rapidly discovering antisense oligomeric compounds, which cover our rapid throughput method of discovering antisense oligonucleotides. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>Government Regulation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Extensive regulation by United States and foreign governmental authorities governs our manufacture and potential sale of therapeutics. In particular,
pharmaceutical products are subject to rigorous preclinical and clinical testing and other approval requirements by the FDA in the United States under the Federal Food, Drug and Cosmetic Act and by
comparable agencies in most foreign </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

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<P><FONT SIZE=2>countries.
Various federal, state and foreign statutes also govern or influence the manufacture, safety, labeling, storage, record keeping and marketing of such products. State, local, and other
authorities also regulate pharmaceutical manufacturing facilities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with obtaining approval of Vitravene, we successfully passed the manufacturing pre-approval inspection by the FDA and European regulatory authorities. Approval
of
each new drug will require a rigorous manufacturing pre-approval inspection by regulatory authorities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state and local regulations. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
fund our Ibis division primarily through contracts or subcontracts with agencies of the United States Government. As a result, we must comply with various government regulations,
including the Federal Acquisition Regulations, or FARs, and agency regulations supplemental to the FARs; the Truth in Negotiations Act, which requires certification and disclosure of all cost and
pricing data in connection with certain contract negotiations; and laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes
and the export of certain products and technical data. </FONT></P>


<P><FONT SIZE=2><B>Competition  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For many of their applications, our drugs will compete with existing therapies for market share. In addition, there are a number of companies pursuing the
development of oligonucleotide-based technology and the development of pharmaceuticals utilizing this technology. These companies include specialized pharmaceutical firms and large pharmaceutical
companies acting either independently or together with biopharmaceutical companies. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vitravene
and our other products under development address numerous markets. The diseases targeted by our drugs for which we may receive regulatory approval will determine our
competition. For certain of our products, an important factor in competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which we can develop
products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market is an important competitive factor. We expect to compete among products
approved for sale based on a variety of factors, including, among other things, product efficacy, safety, reliability, availability, price and patent position. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
number of factors have affected the market for Vitravene, our antisense drug for CMV retinitis. Anti-HIV drugs that were introduced prior to Vitravene's approval, have
prolonged survival in HIV-infected individuals. This has resulted in a decline in mortality from AIDS, accompanied by a decline in the incidence of many opportunistic infections, including
CMV retinitis. </FONT></P>

<P><FONT SIZE=2><B>Employees  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;3, 2005 we employed approximately 303 individuals, of whom 141 held advanced degrees. These numbers exclude employees impacted by our
January&nbsp;2005 reduction in force, some of who were still employed by us as transition employees or under our salary continuation program. A significant number of our management and professional
employees have had prior experience with pharmaceutical, biotechnology or medical product companies. Collective bargaining agreements do not cover any of our employees, and management considers
relations with its employees to be good. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

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<P><FONT SIZE=2><A
NAME="page_dm1045_1_26"> </A> </FONT> <FONT SIZE=2><B>Executive Officers of Isis  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth certain information regarding our executive officers as of March&nbsp;3, 2005: </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="44%" ALIGN="CENTER"><FONT SIZE=1><B>Name</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="6%" ALIGN="CENTER"><FONT SIZE=1><B>Age</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="44%" ALIGN="CENTER"><FONT SIZE=1><B>Position</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>Stanley T. Crooke, M.D., Ph.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>59</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Chairman of the Board, President and Chief Executive Officer</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>B. Lynne Parshall, J.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>49</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Director, Executive Vice President, Chief Financial Officer and Secretary</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>C. Frank Bennett, Ph.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>48</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President, Antisense Research</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>Richard K. Brown, Ph.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>52</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President, Business Development</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>David J. Ecker, Ph.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>50</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President and Scientific Head of Ibis Division</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>Arthur A. Levin, Ph.D.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>51</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President, Development</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>Patricia Lowenstam</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>58</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President, Human Resources and Operations</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>John McNeil</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>40</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President, Ibis Product Development</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="44%"><FONT SIZE=2>Michael J. Treble</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT" VALIGN="BOTTOM"><FONT SIZE=2>58</FONT></TD>
<TD WIDTH="3%" VALIGN="BOTTOM"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%" VALIGN="BOTTOM"><FONT SIZE=2>Vice President and Head of Ibis Division</FONT></TD>
</TR>
</TABLE></DIV>
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<P><FONT SIZE=2>STANLEY T. CROOKE, M.D., Ph.D.<BR></FONT> <FONT SIZE=2><I>Chairman of the Board, President and Chief Executive Officer  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Crooke was a founder of Isis and has been its Chief Executive Officer and a director since January&nbsp;1989. He served as our President from
January&nbsp;1989 to May&nbsp;1994, and was elected Chairman of the Board in February&nbsp;1991. SmithKline Beckman Corporation, a pharmaceutical company, employed Dr.&nbsp;Crooke from 1980
until January of 1989, where his titles included President of Research and Development of SmithKline and French Laboratories. He serves as a director of Antisense Therapeutics&nbsp;Ltd., a
biopharmaceutical company, Axon Instruments,&nbsp;Inc., a developer and manufacturer of novel high-technology devices and software for drug discovery, and EPIX Medical,&nbsp;Inc., a
developer of magnetic resonance imaging contrast agents, Northern Arizona University Arts and Sciences Advisory Council, Flagstaff, Arizona, and BIOCOM, San Diego, California. Dr.&nbsp;Crooke is
also an adjunct professor of pharmacology at San Diego State University. </FONT></P>

<P><FONT SIZE=2>B. LYNNE PARSHALL, J.D.<BR></FONT> <FONT SIZE=2><I>Director, Executive Vice President, Chief Financial Officer, and Secretary  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Parshall has served as a director of Isis since September&nbsp;2000. She has served as our Executive Vice President since December&nbsp;1995, our
Chief Financial Officer since June&nbsp;1994, and our Secretary since November&nbsp;1991. From February&nbsp;1993 to December&nbsp;1995, she was a Senior Vice President of Isis, and from
November&nbsp;1991 to February&nbsp;1993, she was a Vice President of Isis. Prior to joining Isis, Ms.&nbsp;Parshall practiced law at Cooley Godward LLP, counsel to Isis, where she was a partner
from 1986 to 1991. Ms.&nbsp;Parshall is on the Board of Trustees of the Bishops' School. Ms.&nbsp;Parshall is also a member of American, California and San Diego bar associations. </FONT></P>

<P><FONT SIZE=2>C. FRANK BENNETT, Ph.D.<BR></FONT> <FONT SIZE=2><I>Vice President, Antisense Research  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Bennett has served as our Vice President, Antisense Research since June&nbsp;1995. From March&nbsp;1993 to June&nbsp;1995, he was Director,
Molecular Pharmacology, and from May&nbsp;1992 to March&nbsp;1993, he was an Associate Director in our Molecular and Cellular Biology department. Prior to </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

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<P><FONT SIZE=2>joining
Isis in 1989, Dr.&nbsp;Bennett was employed by SmithKline and French Laboratories in various research positions. </FONT></P>

<P><FONT SIZE=2>RICHARD K. BROWN, Ph.D.<BR></FONT> <FONT SIZE=2><I>Vice President, Business Development  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Brown joined Isis in June&nbsp;2001 as President of the GeneTrove program and has been our Vice President, Business Development since
January&nbsp;2003. Prior to joining Isis, Dr.&nbsp;Brown was President of Irori, a company that develops, manufactures and markets combinatorial chemistry and medicinal chemistry products to the
pharmaceutical industry. He joined Irori in 1996 and served as President from 1998 to June&nbsp;2001. </FONT></P>

<P><FONT SIZE=2>DAVID J. ECKER, Ph.D.<BR></FONT> <FONT SIZE=2><I>Vice President and Scientific Head, Ibis Division  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Ecker was a founder of Isis and has served as a Vice President since June&nbsp;1995. In 2001 he assumed the role of Scientific Head of our Ibis
Division. He served as our Vice President, Biology from July&nbsp;1993 to June&nbsp;1995, as our Executive Director, Molecular and Cellular Biology from February&nbsp;1993 to July&nbsp;1993,
and as our Director, Molecular and Cellular Biology from February&nbsp;1989 to February&nbsp;1993. From 1984 until February&nbsp;1989, he was employed by SmithKline and French Laboratories in a
variety of research positions. </FONT></P>

<P><FONT SIZE=2>ARTHUR A. LEVIN, Ph.D.<BR></FONT> <FONT SIZE=2><I>Vice President, Development  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dr.&nbsp;Levin has served as our Vice President, Development since 1995. Prior to joining Isis, Dr.&nbsp;Levin worked at Hoffmann-La
Roche&nbsp;Inc. where he was Research Leader in their Investigative Toxicology Department managing the Nuclear Receptor Research Group. During his tenure at Hoffman-LaRoche, Dr.&nbsp;Levin also
established and supervised laboratories dedicated to the research of mechanisms of toxicity, biochemical toxicology and toxicokinetics. </FONT></P>

<P><FONT SIZE=2>PATRICIA LOWENSTAM<BR></FONT> <FONT SIZE=2><I>Vice President, Human Resources and Operations  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;Lowenstam has served as our Vice President, Human Resources and Operations since January&nbsp;1995. She joined Isis in August&nbsp;1992 as our
Director, Human Resources and served in that capacity until January&nbsp;1995. Prior to joining Isis, she held senior management positions in Human Resources with Quotron Systems,&nbsp;Inc.,
Citicorp, Zale Corporation, and the May Company. </FONT></P>


<P><FONT SIZE=2>JOHN MCNEIL<BR></FONT> <FONT SIZE=2><I>Vice President, Ibis Product Development  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;McNeil has served as our Vice President, Ibis Product Development since January&nbsp;2005. Prior to that, he was our Vice President, Informatics
since October&nbsp;1999. Mr.&nbsp;McNeil joined Isis in October&nbsp;1997 as our Director, Informatics. Prior to joining Isis, Mr.&nbsp;McNeil was President of John McNeil&nbsp;&amp;
Co.,&nbsp;Inc., and held various positions at SAIC in San Diego from 1989 to 1997, including Manager of the Laboratory Sensors and Automation division. </FONT></P>

<P><FONT SIZE=2>MICHAEL J. TREBLE<BR></FONT> <FONT SIZE=2><I>Vice President and Head, Ibis Division  </I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Treble joined Isis in December&nbsp;2004 as Head of our Ibis Division and a Vice President of the Company. Prior to joining Isis, Mr.&nbsp;Treble
was President and Chief Executive Officer from 2000 to 2003 of Nimblegen System,&nbsp;Inc., which develops DNA microarray and chemistry technologies. From 1995 to </FONT></P>

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<P><FONT SIZE=2>2000,
Mr.&nbsp;Treble was the Executive Vice President, Chief Operating Officer and Director of Third Wave Technologies,&nbsp;Inc. which provides research and molecular diagnostic products to the
healthcare industry. Mr.&nbsp;Treble was also the Chairman, Chief Executive Officer and founder of Genetic Models,&nbsp;Inc. from 1991 until it was sold to Charles River Laboratories in
July&nbsp;2001. </FONT></P>

<P><FONT SIZE=2><B>RISK FACTORS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Investing in our securities involves a high degree of risk. In addition to the other information in this report on
Form&nbsp;10-K, you should carefully consider the risks described below before purchasing our securities. If any of the following risks actually occur, our business could be materially
harmed, and our financial condition and results of operations could be materially and adversely affected. As a result, the trading price of our securities could decline, and you might lose all or part
of your investment.</I></FONT></P>

<P><FONT SIZE=2><B>We have incurred losses, and our business will suffer if we fail to achieve profitability in the future.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because drug discovery and development require substantial lead-time and money prior to commercialization, our expenses have exceeded our revenue
since we were founded in January&nbsp;1989. As of December&nbsp;31, 2004, we had accumulated losses of approximately $698.4&nbsp;million and a stockholders' deficit of approximately
$72.1&nbsp;million. Most of the losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
Most of our revenue has come from collaborative arrangements, with additional revenue from interest income and research grants and the sale or licensing of patents. We currently have only one product,
Vitravene, approved for commercial use. This product has limited sales potential. We expect to incur additional operating losses over the next several years, and these losses may increase if we cannot
increase or sustain revenue. We may not successfully develop any additional products or services, or achieve or sustain future profitability. </FONT></P>

<P><FONT SIZE=2><B>If we or our partners fail to obtain regulatory approval for our products, we will not be able to sell them.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and our partners must conduct time-consuming, extensive and costly clinical trials to show the safety and efficacy of each of our drug candidates
before a drug candidate can be approved for sale. We must conduct these trials in compliance with United States Food and Drug Administration regulations and with comparable regulations in other
countries. If the FDA or another regulatory agency believes that we or our partners have not sufficiently demonstrated the safety or efficacy of our drug candidates, it will not approve them or will
require additional studies, which can be time consuming and expensive and which will delay commercialization of a drug candidate. We and our partners may not be able to obtain necessary regulatory
approvals on a timely basis, if at all, for any of our drug candidates. Failure to receive these approvals or delays in these approvals could prevent or delay commercial introduction of a product and,
as a result, could negatively impact our ability to generate revenue from product sales. In addition, following approval of a drug candidate, we and our partners must comply with comprehensive
government regulations regarding how we manufacture, market and distribute products. If we fail to comply with these regulations, regulators could force us to withdraw a drug candidate from the market
or impose other penalties or requirements that also could have a negative impact on our financial results. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have only introduced one commercial product, Vitravene. We cannot guarantee that any of our other drug candidates will be safe and effective, will be approved for commercialization or
that our partners or we can successfully commercialize these drug candidates. </FONT></P>

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<P><FONT SIZE=2><B>If the results of clinical testing indicate that any of our drugs under development are not suitable for commercial use, or if additional testing is required to demonstrate
suitability, we may need to abandon one or more of our drug development programs.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Drug discovery and development has inherent risks, including the risk that molecular targets prove not to be important in a particular disease, the risk that
compounds that demonstrate attractive activity in preclinical studies do not demonstrate similar activity in human beings, the risk that a compound is not safe or effective for use in humans, and the
risk that successful results in early human clinical trials may not be indicative of results in late-stage clinical trials. Antisense technology in particular is relatively new and
unproven. We are applying most of our resources to create safe and effective drugs for human use. Any of the risks described above could prevent us from meeting this goal. In the past, we have
invested in clinical studies of drug candidates that have not met the primary clinical end points in their initial Phase III studies. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March&nbsp;2003, we reported the results of a Phase III clinical trial of Affinitak in patients with late stage non-small cell lung cancer and in October&nbsp;2004, we
reported the results of a second similar Phase III clinical trial. In each case, Affinitak failed to demonstrate improved survival sufficient enough to support an NDA filing. In December&nbsp;2004,
we reported the results of our Phase III clinical trials of alicaforsen in patients with active Crohn's disease, in which alicaforsen did not demonstrate statistically significant induction of
clinical remissions compared to placebo. Similar results could occur with the trials for our other drugs. If any of our drugs in clinical studies do not show sufficient efficacy in patients with the
targeted indication, it could negatively impact our development and commercialization goals for this and other drugs and our stock price could decline. </FONT></P>

<P><FONT SIZE=2><B>If the market does not accept our products, we are not likely to generate revenues or become profitable.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success will depend upon the medical community, patients and third-party payors accepting our products as medically useful, cost-effective and
safe. We cannot guarantee that, if approved for commercialization, doctors will use our products to treat patients. We currently have one commercially available product, Vitravene, a treatment for
cytomegalovirus, or CMV, retinitis in AIDS patients, which addresses a small market. Our partners and we may not successfully commercialize additional products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
degree of market acceptance for any of our products depends upon a number of factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
receipt and scope of regulatory approvals;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
establishment and demonstration in the medical and patient community of the efficacy and safety of our drug candidates and their potential advantages over competing
products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
cost and effectiveness of our drug candidates compared to other available therapies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>The
patient convenience of the dosing regimen for our drug candidates; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Reimbursement
policies of government and third party payors. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based
on the profile of our drug candidates, physicians, patients, patient advocates, payors or the medical community in general may not accept and use any products that we may develop. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

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<P><FONT SIZE=2><B>If any of our collaborative partners fail to fund our collaborative programs or develop or sell any of our products under development, or if we cannot obtain additional
partners, we may have to delay or stop progress on our product development programs.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, corporate partnering has played a key role in our strategy to fund our development programs and to add key development resources. We plan to continue to
rely on additional collaborative arrangements to develop and commercialize our products. However, we may not be able to negotiate additional attractive collaborative arrangements, and, even if
negotiated, the collaborative arrangements may not be successful. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have entered into collaborative arrangements with third parties to develop many of our product candidates. We enter into these collaborations in order to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Fund
our research and development activities;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Access
manufacturing by third parties;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Seek
and obtain regulatory approvals;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Conduct
clinical trials; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Successfully
commercialize existing and future product candidates. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any of our partners fails to develop or sell any drug in which we have retained a financial interest, our business may suffer. These collaborations may not continue or result in
commercialized drugs. Our collaborators can terminate their relationships with us under certain circumstances, some of which are outside of our control. For example, in November&nbsp;2004 based on
the outcome of both Phase III trials, Eli Lilly discontinued its investment in Affinitak. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
drug candidates in our development pipeline are being developed and/or funded by corporate partners, including Antisense Therapeutics Limited, OncoGenex Technologies&nbsp;Inc.
and Lilly. We have received significant financial support from United States Government-funded grants and contracts for our Ibis division and the development of our TIGER system. The United States
Government can unilaterally terminate these contracts and grants at its convenience at any time, even if we have fully performed our obligations. If any of these pharmaceutical company or government
partners stopped funding and/or developing these products, our business could suffer and we may not have the resources available to develop these products on our own. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
of our partners are pursuing other technologies or developing other drug candidates either on their own or in collaboration with others, including our competitors, to develop
treatments for the same diseases targeted by our own collaborative programs. Competition may negatively impact a partner's focus on and commitment to our drug candidate and, as a result, could delay
or otherwise negatively affect the commercialization of a drug candidate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the disappointing results of the two Affinitak trials, our Phase III clinical trials of alicaforsen in patients with active Crohn's disease or any future clinical trial
failures could impair our ability to attract new collaborative partners. If we cannot continue to secure additional collaborative partners, our revenues could decrease and the development of our drug
candidates could suffer. </FONT></P>

<P><FONT SIZE=2><B>We may not successfully develop or derive revenues from our business based on our TIGER system to identify infectious organisms.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our TIGER system is subject to the risks inherent in developing tools based on innovative technologies. Our product is at an early stage of development and
requires additional research and development prior to marketing. If our potential customers fail to purchase our TIGER system due to competition or other factors, or if we fail to develop applications
that lead to market acceptance, we </FONT></P>

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<P><FONT SIZE=2>could
lose our investment in this technology and our TIGER business could fail to meet our business and financial objectives. </FONT></P>

<P><FONT SIZE=2><B>If we fail to obtain timely funding, we may need to curtail or abandon some of our programs.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our product candidates are still undergoing clinical trials or are in the early stages of research and development. All of our products under development
will require significant additional research, development, preclinical and/or clinical testing, regulatory approval and a commitment of significant additional resources prior to their
commercialization. Based on our current operating plan with reasonable assumptions for new sources of revenue and cash, we believe our resources will be sufficient to meet our anticipated requirements
through at least mid 2007. If we do not meet our goals to commercialize our products, or to license our drugs and proprietary technologies, we will need additional funding in the future. Our future
capital requirements will depend on many factors, such as the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
profile and launch timing of our drugs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>continued
scientific progress in our research, drug discovery and development programs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
size of our programs and progress with preclinical and clinical trials;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
time and costs involved in obtaining regulatory approvals;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>competing
technological and market developments, including the introduction by others of new therapies that address our markets;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>success
in developing and commercializing a business based on our TIGER system to identify infectious organisms; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in existing collaborative relationships and our ability to establish and maintain additional collaborative arrangements. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we need additional funds, we may need to raise them through public or private financing. Additional financing may not be available at all or on acceptable terms. If we raise
additional funds by issuing equity securities, the shares of existing stockholders will be diluted and their price, as well as the price of our other securities, may decline. If adequate funds are not
available, we may have to cut back on one or more of our research, drug discovery or development programs. For example, in January&nbsp;2005 we decided to terminate the development of two lower
priority drugs, ISIS 14803 and ISIS 104838. Alternatively, we may obtain funds through arrangements with collaborative partners or others, which could require us to give up rights to certain of our
technologies, product candidates or products. </FONT></P>

<P><FONT SIZE=2><B>If we cannot manufacture our products or contract with a third party to manufacture our products at costs that allow us to charge competitive prices to buyers, we will not be
able to market products profitably.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we successfully commercialize any of our drug candidates, we may be required to establish large-scale commercial manufacturing capabilities. In addition, as
our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. We have limited experience manufacturing pharmaceutical
products of the chemical class represented by our drug candidates, called oligonucleotides, on a commercial scale for the systemic administration of a drug. There are a small number of suppliers for
certain capital equipment and raw materials that we use to manufacture our drugs, and some of these suppliers will need to increase their scale of production to meet our projected needs for commercial
manufacturing. Further, we must continue to improve our manufacturing processes to allow us to reduce our product costs. We may not be able to manufacture at a cost or in quantities necessary to make
commercially successful products. </FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also,
manufacturers, including us, must adhere to the FDA's current Good Manufacturing Practices regulations which the FDA enforces through its facilities inspection program. We and our
contract manufacturers may not be able to comply or maintain compliance with Good Manufacturing Practices regulations. Non-compliance could significantly delay our receipt of marketing
approval for potential products or result in FDA enforcement action after approval that could limit the commercial success of our potential product. </FONT></P>

<P><FONT SIZE=2><B>If we fail to compete effectively, our products will not contribute significant revenues.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our competitors are engaged in all areas of drug discovery throughout the world, are numerous, and include, among others, major pharmaceutical companies and
specialized biopharmaceutical firms. Other companies are engaged in developing antisense technology or unique methods of identifying infectious organisms. Our competitors may succeed in developing
drug candidates or technologies that are more effective than any drug candidates or technologies that we are developing. These competitive developments could make our products obsolete or
non-competitive. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
of our competitors have substantially greater financial, technical and human resources than we do. In addition, many of these competitors have significantly greater experience than
we do in conducting preclinical testing and human clinical trials of new pharmaceutical products and in obtaining FDA and other regulatory approvals of products for use in health care. Accordingly,
our competitors may succeed in obtaining regulatory approval for products earlier than we do. We will also compete with respect to marketing and sales capabilities, areas in which we have limited or
no experience. </FONT></P>

<P><FONT SIZE=2><B>If we cannot protect our patents or our proprietary rights, others may compete more directly against us.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends to a significant degree upon our ability to continue to develop and secure intellectual property rights to proprietary products and services.
However, we may not receive issued patents on any of our pending patent applications in the United States or in other countries. In addition, the scope of any of our issued patents may not be
sufficiently broad to provide us with a competitive advantage. Furthermore, our issued patents or patents licensed to us may be successfully challenged, invalidated or circumvented so that our patent
rights would not create an effective competitive barrier or revenue source. </FONT></P>

<P><FONT SIZE=2><B>Intellectual property litigation could be expensive and prevent us from pursuing our programs.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is possible that in the future we may have to defend our intellectual property rights. In the event of an intellectual property dispute, we may be forced to
litigate to defend our rights or assert them against others. Disputes could involve arbitration, litigation or proceedings declared by the United States Patent and Trademark Office or the
International Trade Commission or foreign patent authorities. Intellectual property litigation can be extremely expensive, and this expense, as well as the consequences should we not prevail, could
seriously harm our business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a third party claims that our products or technology infringe their patents or other intellectual property rights, we may have to discontinue an important product or product line,
alter our products and processes, pay license fees or cease certain activities. We may not be able to obtain a license to such intellectual property on favorable terms, if at all. There are many
patents issued or applied for in the biotechnology industry, and we may not be aware of patents or applications held by others that relate to our business. This is especially true since patent
applications in the United States are filed confidentially. Moreover, the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal issues
remain unresolved. </FONT></P>

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<P><FONT SIZE=2><B>If we do not progress in our programs as anticipated, the price of our securities could decrease.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For planning purposes, we estimate the timing of a variety of clinical, regulatory and other milestones, like when a certain product candidate will enter the
clinic, when we will complete a clinical trial, or when we will file an application for marketing approval. We base our estimates on present facts and a variety of assumptions. Many of the underlying
assumptions are outside of our control. If we do not achieve milestones when we expect to, investors could be disappointed and the price of our securities would likely decrease. </FONT></P>

<P><FONT SIZE=2><B>The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of
success.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are dependent on the principal members of our management and scientific staff. We do not have employment agreements with any of our executive officers. The
loss of our management and key scientific employees might slow the achievement of important research and development goals. It is also critical to our success that we recruit and retain qualified
scientific personnel to perform research and development work. We may not be able to attract and retain skilled and experienced scientific personnel on acceptable terms because of intense competition
for experienced scientists among many pharmaceutical and health care companies, universities and non-profit research institutions. Failure to succeed in clinical trials may make it more
challenging to recruit and retain qualified scientific personnel. </FONT></P>

<P><FONT SIZE=2><B>We depend on third parties in the conduct of our clinical trials for our product candidates and any failure of those parties to fulfill their obligations could adversely affect
our development and commercialization plans.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on independent clinical investigators, contract research organizations and other third party service providers in the conduct of our clinical trials for
our product candidates and expect to continue to do so in the future. We rely heavily on these parties for successful execution of our clinical trials, but do not control many aspects of their
activities. For example, the investigators are not our employees. However, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational
plan and protocols for the trial. Third parties may not complete activities on schedule, or may not conduct our clinical trials in accordance with regulatory requirements
or our stated protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval and commercialization of our product candidates. </FONT></P>

<P><FONT SIZE=2><B>If the price of our securities continues to be highly volatile, this could make it harder for you to liquidate your investment and could increase your risk of suffering a loss.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market price of our common stock, like that of the securities of many other biopharmaceutical companies, has been and is likely to continue to be highly
volatile. These fluctuations in our common stock price may significantly affect the trading price of our securities. During the 12&nbsp;months preceding December&nbsp;31, 2004, the market price of
our common stock has ranged from $4.22 to $9.90 per share. On March&nbsp;11, 2005 the closing price of our common stock on the Nasdaq National Market was $3.95 per share. Many factors can affect the
market price of our securities, including, for example, fluctuations in our operating results, announcements of collaborations, clinical trial results, technological innovations or new drug products
being developed by us or our competitors, governmental regulation, regulatory approval, developments in patent or other proprietary rights, public concern regarding the safety of our drugs and general
market conditions. </FONT></P>

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<P><FONT SIZE=2><B>Provisions in our certificate of incorporation, other agreements and Delaware law may prevent stockholders from receiving a premium for their shares.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our certificate of incorporation provides for classified terms for the members of our board of directors. Our certificate also includes a provision that requires
at least 66% of our voting stockholders to approve a merger or certain other business transactions with, or proposed by, any holder of 15% or more of our voting stock, except in cases where certain
directors approve the transaction or certain minimum price criteria and other procedural requirements are met. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
certificate of incorporation also requires that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of
stockholders and may not be taken by written consent. In addition, only our board of directors, chairman of the board or chief executive officer can call special meetings of our stockholders. We also
have implemented a stockholders' rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis. These provisions, as well as
Delaware law and other of our agreements, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices, and
may limit the ability of our stockholders to approve transactions that they think may be in their best interests. In addition, our board of directors has the authority to fix the rights and
preferences of and issue shares of preferred
stock, which may have the effect of delaying or preventing a change in control of our company without action by our stockholders. </FONT></P>

<P><FONT SIZE=2><B>If registration rights that we have previously granted are exercised, then the price of our securities may be negatively affected.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have granted registration rights in connection with the issuance of our securities to Eli Lilly and Company. These registration rights cover approximately
2.5&nbsp;million shares of our common stock which may become outstanding upon the conversion of outstanding convertible securities. If these securities are converted and the holder exercises its
registration rights, it will bring additional shares of our common stock into the market, which may have an adverse effect on the price of our securities. </FONT></P>

<P><FONT SIZE=2><B>Our business is subject to changing regulations for corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each year we are required to evaluate our internal controls systems in order to allow management to report on, and our Registered Independent Public Accounting
Firm to attest to, our internal controls as required by Section&nbsp;404 of the Sarbanes-Oxley Act. As a result, we will incur additional expenses and will suffer a diversion of management's time.
In addition, if we cannot continue to comply with the requirements of Section&nbsp;404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the
Securities and Exchange Commission, the Public Company Accounting Oversight Board, or PCAOB, or the NASDAQ Stock Exchange. Any such action could adversely affect our financial results and the market
price of our common stock. </FONT></P>

<P><FONT SIZE=2><A
NAME="do1045_item_2._properties."> </A>
<A NAME="toc_do1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>Item 2. Properties.    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;3, 2005, we occupied approximately 218,000 square feet of laboratory and office space, including 6,888 square feet of manufacturing area built
to meet Good Manufacturing Practices and 18,800 square feet, which our Ibis division occupies. We are primarily located in six buildings in Carlsbad, California. We own three of these buildings and,
as of December&nbsp;31, 2004, these buildings secured approximately $6.1&nbsp;million of our debt. We lease three of the buildings under lease agreements, of which two leases will expire in 2007
and one will expire in 2010. In February&nbsp;2003, we completed an expansion of our manufacturing facility to upgrade our existing manufacturing suite and add a second state of the art
manufacturing suite. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=34,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=547676,FOLIO='34',FILE='DISK027:[05SAN5.05SAN1045]DO1045A.;8',USER='ALOEW',CD='15-MAR-2005;08:21' -->
<A NAME="page_do1045_1_35"> </A>
<BR>

<P><FONT SIZE=2><A
NAME="do1045_item_3._legal_proceedings."> </A>
<A NAME="toc_do1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>Item 3. Legal Proceedings.    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ajinomoto Co.,&nbsp;Inc. v. Isis Pharmaceuticals,&nbsp;Inc.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;On or about January&nbsp;27, 2005, Ajinomoto
Co.,&nbsp;Inc., or Ajinomoto filed a Demand for Arbitration against us with the American Arbitration Association in San Diego, California. The Demand relates to a February&nbsp;17, 1994 license
agreement between Ajinomoto and us, which purports to license certain intellectual property, including United States Patent No.&nbsp;5,013,830, or the 830 patent, in exchange for initial payments,
royalties and certain milestone payments relating to the development of products covered by the license. Ajinomoto alleges that several products developed by us are covered by the "830 patent, and
thus by the license. Ajinomoto seeks a determination of products covered by the license, along with an accounting of any sums due as a result. Ajinomoto also seeks a determination that the license is
still in force. We have not yet filed an answer, and a hearing has not yet been set. We believe that Ajinomoto's claims are without merit, and we intend to vigorously defend our position in
arbitration. </FONT></P>

<P><FONT SIZE=2><A
NAME="do1045_item_4._submission_of_m__do102383"> </A>
<A NAME="toc_do1045_3"> </A>
<BR></FONT><FONT SIZE=2><B>Item 4. Submission of Matters to a Vote of Security Holders.    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="do1045_part_ii"> </A>
<A NAME="toc_do1045_4"> </A>
<BR></FONT><FONT SIZE=2><B>PART II    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="do1045_item_5._market_for_registrant___ite04914"> </A>
<A NAME="toc_do1045_5"> </A></FONT> <FONT SIZE=2><B>Item 5. Market For Registrant's Common Equity and Related Stockholder Matters and Issuer Repurchases of Equity Securities    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is traded publicly through the Nasdaq National Market under the symbol "ISIS." The following table presents quarterly information on the price
range of our common stock. This information indicates the high and low sale prices reported by the Nasdaq National Market. These prices do not include retail markups, markdowns or commissions. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>HIGH</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>LOW</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>2004</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.59</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6.66</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>9.90</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.54</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6.67</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.22</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6.63</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.25</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><BR><FONT SIZE=2><B>2003</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>First Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.55</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>2.50</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Second Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6.85</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3.50</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Third Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>8.05</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4.55</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="72%"><FONT SIZE=2>Fourth Quarter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>7.07</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5.20</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of March&nbsp;3, 2005, there were approximately 1,067 stockholders of record of our common stock. We have never paid dividends and do not anticipate paying any dividends in the
foreseeable future. </FONT></P>

<P><FONT SIZE=2><B>Recent Sales of Unregistered Securities  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

<P><FONT SIZE=2><B>Purchases of Equity Securities by Us and Affiliated Persons  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=35,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=329785,FOLIO='35',FILE='DISK027:[05SAN5.05SAN1045]DO1045A.;8',USER='ALOEW',CD='15-MAR-2005;08:21' -->
<A NAME="page_do1045_1_36"> </A>
<BR>

<P><FONT SIZE=2><B>Available Information  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We make available, free of charge, on our web site, </FONT><FONT SIZE=2><I>www.isispharm.com</I></FONT><FONT SIZE=2>, our reports on 10-K,
10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that is included on
or linked to our Internet site is not a part of this report or any registration statement that incorporates this report by reference. </FONT></P>

<P><FONT SIZE=2><A
NAME="do1045_item_6._selected_consolidated___ite03145"> </A>
<A NAME="toc_do1045_6"> </A>
<BR></FONT><FONT SIZE=2><B>Item 6. Selected Consolidated Financial Data (in thousands, except per share amounts):    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="36%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="36%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2><B>Consolidated Statement of Operations Data:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2>Revenue (includes amounts for R&amp;D, licensing and royalties)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>42,624</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>49,990</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>80,179</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>53,273</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>37,255</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>118,474</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>116,963</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>124,074</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>83,741</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>57,014</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2>Net loss applicable to common stock(1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(142,864</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(95,690</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(73,302</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(75,131</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(54,699</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2>Basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(2.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1.73</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1.35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1.70</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1.48</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="36%"><FONT SIZE=2>Shares used in computing basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>56,642</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>55,463</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>54,480</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>44,109</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>37,023</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="97%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="33%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2000</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2><B>Consolidated Balance Sheet:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Cash, cash equivalents and short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>103,883</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>215,504</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>289,353</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>312,018</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>127,262</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Working capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>82,193</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>194,004</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>244,230</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>280,569</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>118,568</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>208,425</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>334,942</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>438,683</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>417,061</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>183,256</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Long-term debt and capital lease obligations, less current portion</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>236,611</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>213,397</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>192,893</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>125,710</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>102,254</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(698,447</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(555,583</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(459,893</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(386,591</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(311,460</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="33%"><FONT SIZE=2>Stockholders equity (deficit)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(72,133</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>67,178</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>155,477</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>223,099</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>66,366</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Our
net loss applicable to common stock includes charges related to restructuring activities of $32.4&nbsp;million, $1.8&nbsp;million, $1.4&nbsp;million, and $1.6&nbsp;million
in 2004, 2003, 2002, and 2000, respectively. During 2001, we did not incur any charges related to restructuring activities. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

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<P><FONT SIZE=2><A
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<BR></FONT><FONT SIZE=2><B>Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations    <BR>    </B></FONT></P>

<UL>

<P><FONT SIZE=2><B> Overview  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since our inception in 1989, we have pioneered the science of antisense for the development of a new class of drugs. We have designed antisense drugs to treat a
wide variety of diseases. Due to their gene selectivity, antisense drugs have the potential to be highly effective and less toxic than traditional drugs. We have made significant progress in
understanding the capabilities of antisense drugs in treating disease. We have developed new chemistries and novel formulations to enhance the potency and utility of antisense drugs, and we have
successfully turned our expertise into one marketed product and 10 antisense drugs, which we and our partners are advancing in pre-clinical and clinical development, the majority of which
are in Phase&nbsp;I or Phase&nbsp;II human clinical trials. Our products in development address numerous therapeutic areas with major market potential, including inflammatory, metabolic,
cardiovascular diseases, and cancer. We and our partners are studying these drugs in intravenous, subcutaneous, topical cream, enema, aerosol, and oral formulations, and we are advancing antisense
drugs using second-generation chemistry. We achieved marketing clearance for the world's first antisense drug, Vitravene (fomivirsen) in 1998. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
date, we have earned $40.1&nbsp;million in revenue from several government agencies, including up to $37.5&nbsp;million for the development of TIGER and $2.6&nbsp;million to
discover small molecule drugs, under contracts valued at up to $66.3&nbsp;million. These agencies include the Defense Advanced Research Projects Agency, or DARPA, the National Institute of Allergy
and Infectious Diseases, or NIAID, part of the National Institutes of Health, or NIH, the Centers for Disease Control, or CDC, the Federal Bureau of Investigation, or FBI, and the United States Army
Medical Research Institute of Infectious Diseases, or USAMRIID. During 2004 and 2003, revenue generated from agencies of the U.S. Government accounted for 28% and 20%, respectively, of our total
revenue. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a broad patent portfolio covering our technologies. We own or exclusively license more than 1,500 issued patents, which we believe represents the largest antisense and
RNA-oriented patent estate in the pharmaceutical industry. Our intellectual property is a strategic asset that we are exploiting to generate near-term revenue and that we
expect
will also provide us with revenue in the future. To date, we have generated nearly $70.0&nbsp;million from our intellectual property licensing program that helps support our internal drug discovery
and clinical development programs. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are pursuing early-stage antisense research programs, including RNA interference, or RNAi, micro-RNA, and alternative splicing through research collaborations and
partnerships, like our strategic alliances with Alnylam and Ercole. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Business Segments  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We focus our business on two principal segments: </FONT></P>

<UL>

<P><FONT SIZE=2><B><I>Drug Discovery and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our proprietary technology to discover and characterize novel antisense inhibitors has enabled our
scientists to modify the properties of our antisense drug candidates for optimal use with particular targets and thus, to produce a broad proprietary portfolio of compounds applicable to many disease
targets. Further, over the past decade, our scientists have made great advances in chemistries, which we call our second-generation antisense drugs. Second-generation drugs may have increased potency,
stability, oral bioavailability and an improved side effect profile. We have also made significant progress in developing new formulations of antisense drugs, like oral, topical cream, subcutaneous,
intravitreal, aerosol and enema that further expand the potential for antisense technology. </FONT></P>


<P><FONT SIZE=2>We
and our partners currently have 10 drugs in development, of which three are in Phase II clinical development, four are in Phase I clinical development and three are in preclinical </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

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<UL>
<BR>

<P><FONT SIZE=2>development.
Our partners are developing, with our support, five of these ten drugs, which substantially reduces our development costs. </FONT></P>

<P><FONT SIZE=2><B><I>Ibis Division.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Within our Ibis division, we have invented a technology that has the potential to revolutionize the identification of
infectious diseases. This technology is called Triangulation Identification for Genetic Evaluation of Risks, or TIGER. TIGER is the product of core technology development and small molecule drug
discovery research conducted within our Ibis division in its early years. Ibis' central focus now is to develop and commercialize our TIGER technology. Prior to the development of TIGER, our Ibis
division focused on discovering novel small molecule antibacterial drugs. </FONT></P>

<P><FONT SIZE=2>As
a result of the technological and organizational advancements that we have made during 2004 combined with our future commercialization plans for TIGER and the significant contribution that the
division made to Isis' 2004 revenue, and in accordance with the authoritative guidance under SFAS No.&nbsp;131, </FONT><FONT SIZE=2><I>"Disclosure about Segments of an Enterprise and Related
Information,"</I></FONT><FONT SIZE=2> we believe it is appropriate to present the financial results of our Ibis division as a separate operating segment from our consolidated results. We refer to this
operating segment as our Ibis division. Prior to 2004, we did not allocate R&amp;D Support or general and administrative costs to our separate operating segments. We believe that it would be impractical
to obtain comparative information for prior periods, and that such comparisons between any period in 2004 and the comparable periods in prior years for R&amp;D support costs and general and administrative
expenses by segment would be meaningless; therefore, we do not discuss these comparisons below. </FONT></P>


<P><FONT SIZE=2><I> Recent Event  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, we made a strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to
continue the development of antisense technology. We announced this decision in January&nbsp;2005. In the fourth quarter of 2004 we recorded a $32.4&nbsp;million charge for restructuring
activities resulting from this decision, which consisted of non-cash write-downs of tangible and intangible assets that are non-essential to our current focus, including excess
or idle equipment, inventories, patent costs, and certain prepaid expenses. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to incur additional charges relating to our restructuring activities during the first quarter of 2005, including those associated with employee termination costs, termination
of certain contractual obligations, the consolidation of our United States facilities, and the closure of our research and development laboratory in Singapore. </FONT></P>

<P><FONT SIZE=2><B>Critical Accounting Policies  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are
required to make certain estimates, judgments and assumptions that we believe are reasonable, based upon the information available to us. These judgments involve making estimates about the effect of
matters that are inherently uncertain and may significantly impact our quarterly or annual results of operations and financial condition. We discuss the development, selection and disclosure of such
estimates with our audit committee each quarter. There are specific risks associated with these critical accounting policies that we describe in the following paragraphs. For all of these policies, we
caution that future events rarely develop exactly as expected, and that best estimates routinely require adjustment. The significant accounting policies,
which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, require the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Assessment
of propriety of revenue recognition and associated deferred revenue; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Determination
of proper valuation of investments in marketable securities and other equity investments;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Estimations
to assess the recoverability of long-lived assets, including property and equipment, intellectual property and licensed technology;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Determination
of proper valuation of inventory;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Determination
of appropriate cost estimates for unbilled preclinical studies and clinical development activities;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Estimation
of our net deferred income tax asset valuation allowance;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Determine
appropriateness of judgements and estimates used in allocating revenue and expenses to operating segments; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Estimations
to determine the fair value of stock-based compensation, including the expected life of the option and the expected stock price volatility over the term of the
expected life. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>Descriptions
of these critical accounting policies follow. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Revenue Recognition  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We follow the provisions as set forth by current accounting rules, which primarily include Staff Accounting Bulletin No.&nbsp;101, or SAB 101, </FONT> <FONT SIZE=2><I>"Revenue
Recognition in Financial Statements,"</I></FONT><FONT SIZE=2> SAB 104, </FONT><FONT SIZE=2><I>"Revenue Recognition,"</I></FONT><FONT SIZE=2> and Financial Accounting
Standards Board Emerging Issue Task Force No.&nbsp;00-21, or EITF 00-21, "</FONT><FONT SIZE=2><I>Accounting for Revenue Arrangements with Multiple
Deliverables</I></FONT><FONT SIZE=2>." </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
generally recognize revenue when we have satisfied all contractual obligations and we are reasonably assured of collecting the resulting receivable. We are often entitled to bill our
customers and receive payment from our customers in advance of recognizing the revenue under current accounting rules. In those instances where we have billed our customers or received payment from
our customers in advance of recognizing revenue, we include the amounts in deferred revenue on the balance sheet. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
often enter into collaborations where we receive non-refundable up-front payments for prior or future expenditures. We recognize revenue related to
up-front payments ratably over the period of the contractual arrangements as we satisfy our performance obligations. Occasionally, we are required to estimate the period of a contractual
arrangement or our performance obligations when the agreements we enter into do not clearly define such information. Should different estimates prevail, revenue recognized could be materially
different. We have made estimates of our continuing obligations on several agreements, including our collaborations with ATL, Chiron, Lilly and OncoGenex. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of our Lilly alliance, in 2001 Lilly provided us a $100.0&nbsp;million interest free loan to fund the research collaboration. We take quarterly drawdowns against this loan and
discount the amounts to their net present value by imputing interest on the amount at 20%, which represented market conditions in place at the time we entered into the loan. As of December&nbsp;31,
2004, we had drawn down $95.0&nbsp;million on this loan. We are accreting the loan up to its face value over its term by recording interest expense. The difference between the cash received and the
present value of the loan represents value Lilly gave to us to help fund the research collaboration. We account for this difference as deferred revenue and recognize it as revenue over the period of
contractual performance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
collaborations often include contractual milestones. When we achieve these milestones, we are entitled to payment, as defined by the underlying agreements. We generally recognize
revenue related to milestones upon completion of the milestone's performance requirement, as long as we are reasonably assured of collecting the resulting receivable and we are not obligated to future
performance related to the achievement of the milestone. We recognized revenue during 2004 related to milestones achieved under our agreements with Eyetech, Lilly and Singapore EDB. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>

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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
generally recognize revenue related to the sale of our inventory as we ship or deliver drugs to our partners. To date, in two instances, we completed the manufacturing of drugs, but
our partners asked us to deliver the drug on a later date. Under these circumstances, we ensured that our obligation was complete under the terms of the manufacturing agreement in place and title had
transferred to the customer before we recognized the related revenue. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
often enter into agreements to license our proprietary patent rights on an exclusive or non-exclusive basis in exchange for license and/or royalty fees. We generally
recognize as revenue immediately those licensing and royalty fees for which we have no future performance obligations and are reasonably assured of collecting the resulting receivable. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
often enter into revenue arrangements that contain multiple deliverables. In these cases, we recognize revenue from each element of the arrangement as long as we are able to determine
a separate value for each element, we have completed our obligation to deliver or perform on that element and we are reasonably assured of collecting the resulting receivable. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Valuation of Investments in Marketable Securities  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We account for our investments in marketable securities in accordance with current accounting rules as set forth by SFAS&nbsp;115,
"</FONT><FONT SIZE=2><I>Accounting for Certain Investments in Debt and Equity Securities."</I></FONT><FONT SIZE=2> We carry these investments at fair market value based upon market prices quoted on
the last day of the fiscal quarter. We record unrealized gains and losses as a separate component of stockholders' equity, and include gross realized gains and losses in investment income. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to our investments in marketable securities, we also have equity investments in privately-and publicly-held biotechnology companies. We hold ownership interests
of less than 20% in each of the respective entities. In determining if and when a decrease in market value below our cost in our equity positions is other-than-temporary, we
examine
historical trends in the stock price, the financial condition of the issuer, near term prospects of the issuer, and our current need for cash. When we determine that a decline in value is
other-than-temporary, we recognize an impairment loss in the period in which the other-than-temporary decline occurs. During the first quarter of 2003,
we recorded a non-cash loss on investments of $2.4&nbsp;million related to the impairment of our equity investments in ATL and Hybridon. We recorded these charges based on declines in
market value of the equity investments, as compared to their initial valuations. During the third quarter of 2004, we recorded a non-cash loss on investments of $5.1&nbsp;million
principally related to the impairment of our equity investment in Alnylam. The loss on investment reflected a decrease in the market value of Alnylam's stock in 2004, which we believe was primarily a
result of financial market conditions related to biotechnology companies </FONT></P>

<UL>

<P><FONT SIZE=2><I> Valuation of Long-Lived Assets  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We assess the value of our long-lived assets, which include property and equipment, patent costs, and licenses acquired from third parties, under the
provisions set forth by SFAS&nbsp;144, </FONT><FONT SIZE=2><I>Accounting for the Impairment or Disposal of Long-Lived Assets</I></FONT><FONT SIZE=2>, or SFAS&nbsp;144. We evaluate our
long-lived assets for impairment on at least a quarterly basis. During this process, we review our property and equipment listings, pending domestic and international patent applications,
domestic and international issued patents, and licenses we have acquired from other parties. To determine if any impairment is present, we consider the following, among other factors: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Evidence
of decreases in market value;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Changes
in the extent or manner in which we use an asset;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Adverse
changes in legal factors or in the business climate that would affect the value of an asset; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>An
adverse action or assessment by a regulator;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>An
accumulation of costs significantly in excess of amounts originally expected to acquire or construct an asset;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Current
period operating or cash flow loss combined with a history of operating or cash flow losses associated with an asset used for the purpose of producing revenue; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>Challenges
or potential challenges to our existing patents, the likelihood of applications being issued and the scope of our issued patents </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2004, we made a strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to continue the development of
antisense technology. As a result, during the fourth quarter of 2004 we recorded charges of approximately $11.5&nbsp;million related to the write-down of tangible and intangible assets,
including equipment and patent costs that are non-essential to our current focus. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Valuation of Inventory  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We include in inventory material costs and related manufacturing costs for drugs that we manufacture for our partners under contractual terms and that we use
primarily in our clinical development activities and drug products. We expense these costs when we deliver our drugs to partners, or as we use these drugs in our own clinical trials. We reflect our
inventory on the balance sheet at the lower of cost or market value under the first-in, first-out method. We review inventory periodically and reduce our carrying value of
items considered to be slow moving or obsolete to their estimated net realizable value. We consider several factors in estimating the net realizable value, including shelf lives of raw materials,
alternative uses for our drugs and clinical trial materials and historical write-offs. In the second quarter of 2003, we reduced the carrying value of our raw materials related to
Affinitak to zero. During the fourth quarter of 2004, we recorded a charge of approximately $21.0&nbsp;million for the write-down of inventory to its estimated net realizable value
related to our strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to continue development of antisense technology. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Estimated Liability for Clinical Development Costs  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain accrued liabilities related to unbilled costs for ongoing preclinical studies and clinical trials. These costs primarily relate to third-party
clinical management costs, laboratory costs and analysis, toxicology studies and investigator grants, among other costs. We have multiple drugs in concurrent preclinical studies and clinical trials at
several clinical sites throughout the world. We expect that at any given time we will have liabilities outstanding for our preclinical and clinical development costs related to products or services
for which our service providers have not yet billed us. In order to ensure that we have adequately provided for ongoing preclinical and clinical development costs during the period in which we incur
such costs, we maintain an accrual to cover these costs. We update our estimate for this accrual on at least a quarterly basis. The assessment of these costs is a subjective process that requires
judgment. The ultimate settlement of these costs may differ materially from the amounts we have accrued in our consolidated financial statements. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Valuation Allowance for Net Deferred Tax Assets  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As disclosed in Note&nbsp;5 of Notes to the Consolidated Financial Statements, we record a valuation allowance to offset our net deferred tax assets because we
are uncertain that we will realize these net tax assets. When and if circumstances warrant, we will assess the likelihood that our net deferred tax assets will more likely than not be recovered from
future taxable income and record an appropriate reversal to the valuation allowance. Because we have had net operating losses since inception, we have </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>41</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>established
a 100% valuation allowance for our net deferred tax asset. As of December&nbsp;31, 2004, our deferred tax assets and related valuation allowance totaled approximately
$283.7&nbsp;million. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Segment Information  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide segment financial information and results for our Drug Discovery and Development segment and our Ibis division based on the segregation of revenues and
expenses used for management's assessment of operating performance and operating decisions. Expenses shared by the segments require the use of judgments and estimates in determining the allocation of
expenses to the two segments. Different assumptions or allocation methods could result in materially different results by segment. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Proforma Stock-Based Compensation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide proforma net income and loss per share amounts in accordance with the disclosure only provision of Statement of Financial Accounting Standards
No.&nbsp;123, </FONT><FONT SIZE=2><I>"Accounting for Stock-Based Compensation,"</I></FONT><FONT SIZE=2> or SFAS No.&nbsp;123. The stock-based compensation expense used in these proforma amounts
is based on the fair value of the option at the grant date, which uses the fair value pricing method described in SFAS No.&nbsp;123. This method requires us to use several assumptions to estimate
the fair value, including the expected life of the option and the expected stock price volatility over the term of the expected life. Should any of these assumptions change or differ from the actual
life or actual stock price volatility, our pro forma results could differ substantially. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective
in 2005, pursuant to the provisions of SFAS No.&nbsp;123(R), </FONT><FONT SIZE=2><I>"Share-Based Payment,"</I></FONT><FONT SIZE=2> we will be required to recognize as a
charge to our statement of operations the fair value of all share-based payments to employees, including stock option grants. We can not currently predict the impact that this new accounting treatment
will have on our statement of operations because it will depend on levels of share-based payments we grant in the future. However, accounting for share-based payments to employees using the fair value
method will have no impact on our overall financial position. </FONT></P>

<P><FONT SIZE=2><B>Results of Operations  </B></FONT></P>

<P><FONT SIZE=2><I>Years Ended December&nbsp;31, 2004 and December&nbsp;31, 2003  </I></FONT></P>


<P><FONT SIZE=2><B>Revenue  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue for the year ended December&nbsp;31, 2004 was $42.6&nbsp;million, compared to $50.0&nbsp;million for the same period in 2003. The decrease in
revenue of $7.4&nbsp;million primarily reflects the completion of our Phase III clinical trial of Affinitak in 2003, with an associated reduction in revenue for 2004, offset in part by increased
revenue from our alliances and licenses, particularly with government agencies relating to our TIGER program, Alnylam, Eyetech, and Lilly. Our revenue may fluctuate from period to period based on the
nature and timing of license fees and milestones earned, and other deliverables under agreements with our partners. For example, our fourth quarter 2004 revenue increased over the same period in 2003
primarily as a result of the $3.0&nbsp;million milestone from Eyetech associated with Macugen's marketing clearance from the FDA. Our ability to maintain revenue at current levels will depend on our
ability to obtain new revenue sources and expand existing revenue sources in 2005. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>42</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth information on our revenue by segment (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="75%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Drug Discovery and Development:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Research and development revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>21,684</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>40,605</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Licensing and royalty revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>10,007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>523</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>31,691</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>41,128</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Ibis Division:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Research and development revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>10,933</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>8,862</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Licensing and royalty revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>10,933</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>8,862</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>Total revenue:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Research and development revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>32,617</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>49,467</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="55%"><FONT SIZE=2>Licensing and royalty revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>10,007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>523</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>42,624</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="16%" ALIGN="RIGHT"><FONT SIZE=2>49,990</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P><FONT SIZE=2><I> Research and Development Revenue under Collaborative Agreements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenue under the category research and development revenue under collaborative agreements for the year ended December&nbsp;31, 2004, was
$32.6&nbsp;million, compared to $49.5&nbsp;million for 2003. The decrease of $16.9&nbsp;million reflects the completion of our Phase III clinical trial of Affinitak in 2003 and an associated
reduction in revenue for 2004, offset in part by increased revenue from our TIGER program, our strategic alliance with Alnylam and our research collaboration with Lilly, which included
$1.5&nbsp;million in revenue earned from Lilly in 2004 for the initiation of a Phase I clinical trial of LY2181308 and $750,000 in revenue earned from Lilly in 2004 for the license of LY2275796, a
second generation antisense anti-cancer drug candidate for clinical development. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Ibis division generates revenue from grants and contracts from United States government agencies, including DARPA, CDC, FBI, and NIAID, a part of the NIH. During 2004, we received
grants and contracts for up to $29.5&nbsp;million in funding from various governmental agencies to further the development of our TIGER program. Our Ibis division generated revenue of
$2.0&nbsp;million and $10.9&nbsp;million for the quarter and year ended December&nbsp;31, 2004, respectively, including revenue related to equipment purchased on behalf of the respective
government agencies. Also, we have approval to invoice our government partners an additional $8.6&nbsp;million under our existing contracts and grants. We may receive continued approval to invoice
our government partners under these contracts based upon a variety of factors, including the accomplishment of program objectives and the exercise of additional contract options by the contracting
agencies. In addition, these agencies may terminate these contracts and grants at their convenience at any time, even if we have fully performed our obligations. Consequently, we may never receive the
full amount of the potential value of these awards. Our Ibis division has received contracts and grants from numerous government agencies valued at up to $63.2&nbsp;million. We receive our DARPA
funding through a subcontract with San Diego-based SAIC. This collaboration accounted for approximately 18% and 16% of our total revenue in 2004 and 2003, respectively. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Licensing and Royalty Revenue  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenue from licensing activities and royalties was $10.0&nbsp;million for the year ended December&nbsp;31, 2004, compared with $523,000 in 2003. The
increase of $9.5&nbsp;million primarily reflects $5.5&nbsp;million we earned under our strategic alliance with Alnylam, and $4.0&nbsp;million in milestones earned </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>43</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_dq1045_1_44"> </A>

<P><FONT SIZE=2>from
Eyetech associated with Eyetech's filing of an NDA with the FDA for Macugen and the marketing clearance of Macugen by the FDA. In January&nbsp;2005, we sold a portion of our royalty rights in
Macugen to DRC, in exchange for aggregate payments of $24.0&nbsp;million over the next three years. </FONT></P>

<P><FONT SIZE=2><B>Operating Expenses  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses were $160.5&nbsp;million and $129.0&nbsp;million for the years ended December&nbsp;31, 2004 and 2003, respectively. The increase of
$31.5&nbsp;million was primarily due to non-cash charges of $32.4&nbsp;million for restructuring activities related to our strategic decision to reorganize and refocus our resources to
advance our most promising second-generation drugs and to develop our antisense technology. The 2003 operating expenses included a charge for restructuring activities of $1.8&nbsp;million. The
increase in 2004 was partially offset by the completion of our development activities for Affinitak, and changes to non-cash compensation due to variable accounting for stock options and
in research and development and general and administrative expenses as we describe in the following paragraphs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total
operating expenses for the year ended December&nbsp;31, 2004 included a non-cash compensation benefit of approximately $6,000 due to variable accounting for stock
options, compared to a non-cash compensation expense of $913,000 for 2003. Variable accounting for stock options can result in significant increases and decreases in non-cash
compensation related to stock options as a result of the variability in the company's stock price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
order to analyze and compare our results of operations to other similar companies, we believe that it is important to exclude compensation related to stock options from operating
expenses because it is based on the variability of our stock price rather than operations, and to exclude restructuring activities because the costs are directly related to isolated events. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and Development Expenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2004, our reported total research and development expenses were $118.5&nbsp;million, compared to $117.0&nbsp;million in
2003. Our research and development expenses consist of costs for antisense drug discovery, antisense drug development, our Ibis division and related R&amp;D Support costs. The increase of
$1.5&nbsp;million in 2004, compared to 2003, was primarily due to increased spending to support our TIGER program, start-up costs related to our Singapore laboratory, increased spending
to support the completion of a large Phase II clinical program for alicaforsen enema in patients with ulcerative colitis, and increased spending to support our highest priority second-generation drug
candidates, ISIS 113715 and ISIS 301012. These increases were partially offset by the absence of expenses in 2004 related to Affinitak, which we stopped investing in during 2003, and the completion of
our development activities for alicaforsen for Crohn's disease, ISIS 14803 and ISIS 104838. We expect total research and development spending will decrease in 2005 as a result of the completion of our
development activities for alicaforsen for Crohn's disease, our decision to discontinue development of ISIS 14803 and ISIS 104838, our strategic reorganization and associated reduction in workforce,
consolidation of facilities, and closure of our Singapore location. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2004, our research and development expenses by segment were as follows (in thousands): </FONT></P>

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<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31,<BR>
2004</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Drug Discovery and Development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>105,168</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Ibis Division</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>13,306</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%"><FONT SIZE=2>Total research and development expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>118,474</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>44</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=8,SEQ=44,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=145138,FOLIO='44',FILE='DISK027:[05SAN5.05SAN1045]DQ1045A.;11',USER='CSTCLAI',CD='16-MAR-2005;14:24' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_ds1045_1_45"> </A> </FONT></P>

<UL>

<P><FONT SIZE=2><I> Antisense Drug Discovery  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifying what a gene does, called gene functionalization, and then determining whether a specific gene is a good target for drug discovery, called target
validation, are the first steps in our drug discovery process. We use antisense technology to generate information about the function of genes and to determine the value of genes as drug discovery
targets. We use this information to direct our own antisense drug discovery research, and that of our antisense drug discovery partners. We have created inhibitors to thousands of genes, validated
many targets and dissected numerous disease pathways. Additionally, we have created libraries of antisense inhibitors to identify novel gene function. Our advances in these areas have enhanced our own
antisense drug discovery efforts and our patent portfolio through custom target validation collaborations and intellectual property licenses while generating near-term revenue for us.
Antisense drug discovery is also the function within Isis that is responsible for advancing antisense core technology. Through the efforts of our scientists in the antisense drug discovery group, we
have produced second-generation antisense drugs that have been shown to have increased potency, increased stability, an improved side effect profile and the potential for oral administration. With
more than a decade focused on learning the capabilities of antisense technology and how these compounds behave in the body, our scientists have learned the organs and tissues in humans to which
antisense therapy is effectively directed. Using this knowledge, we have strategically focused our research programs on those sites in the body that accept antisense readily, like the liver, kidney,
fat tissue and bone marrow. These targets expand the current therapeutic scope of antisense research into new disease categories, including obesity and cardiovascular disease. The work of our
scientists has given us the opportunity to enter into important drug discovery relationships with industry leaders like Lilly and Amgen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
we have advanced our antisense technology to a point where we and our partners now have extensive clinical and preclinical development pipelines that are full of product
opportunities, we have far more drug assets than we can afford to develop on our own. As a result, we have significantly reduced our antisense drug discovery activities so that we can focus on our
drugs in development, and we would expect to see our expenses for antisense drug discovery decrease in 2005. We anticipate that our existing relationships and collaborations, as well as prospective
new partners, will continue to help fund our research programs, as well as contribute to the advancement of the science by funding core antisense technology research. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Antisense
drug discovery costs included in research and development expenses for the year ended December&nbsp;31, 2004 totaled $38.4&nbsp;million compared to $37.3&nbsp;million for
2003. The increase of $1.1&nbsp;million in 2004 over 2003 was principally the result of start-up costs related to our Singapore laboratory. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Antisense Drug Development  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our development activities reflect our efforts to advance our drugs through the various stages of preclinical, or animal studies, and human clinical trials. The
development plans for our drugs are subject to numerous uncertainties like obtaining regulatory approval, market availability and successfully obtaining funding, which affects our research and
development expenditures and capital resources. Prior to starting clinical trials, we test our potential products in numerous preclinical studies to identify disease indications for which they may be
candidates. Once we have established that a preclinical drug candidate has met certain clinical requirements and we have filed an Investigational New Drug Application, or IND, with the FDA, we may
initiate clinical trials in the United States for that drug. It may take several years to complete clinical trials, with the length varying substantially according to the complexity, novelty and
intended use of the product candidate. The following timelines represent our estimate of typical completion times for clinical trials we generally conduct: Phase I&#151;one year, Phase
II&#151;one to two years, and Phase III&#151;two to four years. However, a number of factors including the required minimum number of patients, the ability to enroll suitable patients,
the dosing </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>45</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=45,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=554882,FOLIO='45',FILE='DISK027:[05SAN5.05SAN1045]DS1045A.;11',USER='CSTCLAI',CD='16-MAR-2005;13:05' -->
<A NAME="page_ds1045_1_46"> </A>

<P><FONT SIZE=2>regimens
and the requisite follow-up periods, the clinical endpoints and inputs from our corporate partner, tend to vary from product to product and can impact the timing and magnitude of
what we spend on each product in a particular period. These factors are outside our control and often result in dramatic fluctuations in the costs associated with each product on a period to period
basis. As a result, we are unable to estimate the costs to complete our projects. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may conduct multiple clinical trials on a drug candidate, including multiple clinical trials for the various indications we may be studying. Furthermore, as we obtain results from
trials we may elect to discontinue clinical trials for certain drug candidates in certain indications in order to focus our resources on more promising drug candidates or indications. For example, we
recently decided not to initiate additional studies of ISIS 14803 and ISIS 104838. Generally, Phase III clinical trials are the longest, largest and most expensive component of the drug development
process. Further, products in Phase III trials represent the most near term possibility of commercial success. In addition, because Phase III trials typically involve a well-defined
protocol and require dedicated resources, it is easier for us to separately capture costs associated with these projects. Our Phase I and Phase II programs are really research programs that fuel our
Phase III pipeline. When our products are in Phase I or Phase II clinical trials, they are in a dynamic state where we continually adjust the development strategy for each product. Although we may
characterize a product as "in Phase I" or "in Phase II," it does not mean that we are conducting a single, well-defined study with dedicated resources. Instead, we allocate our internal
resources on a shared basis across numerous products based on each product's particular needs at that time. This means we are constantly shifting resources among products. Therefore, what we spend on
each product during a particular period is usually a function of what is required to keep the products progressing in clinical development, not what products we think are most important. For example,
the number of people required to start a new study is large, the number of people required to keep a study going is modest and the number of people required to finish a study is large. However, such
fluctuations are not indicative of a shift in our
emphasis from one product to another and cannot be used to accurately predict future costs for each product. And, because we always have numerous products in preclinical and early stage clinical
research, the fluctuations in expenses from product-to-product, in large part, offset one another. If we partner a drug, it may affect the size of a trial, its timing, its
total cost and the timing of the related cost. For example, during 2003, Lilly reimbursed us for our costs to develop Affinitak. Our partners are developing, with our support, five of our 10 drug
candidates, which substantially reduces our development costs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth research and development expenses for our major antisense drug development projects for the years ended (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Affinitak</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,072</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Alicaforsen for Crohn's disease</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,523</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,519</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Other antisense development products</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>30,202</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>29,323</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Development overhead costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,704</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,234</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%"><FONT SIZE=2>Total antisense drug development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>42,429</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>45,148</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Antisense
drug development costs included in research and development expenses totaled $42.4&nbsp;million and $45.1&nbsp;million for the years ended December&nbsp;31, 2004 and
2003, respectively. The decrease of $2.7&nbsp;million was primarily due to the completion in 2003 of our Phase III trial of Affinitak and the completion in 2004 of our development activities for
alicaforsen for Crohn's disease, offset in part by increased clinical development expenses for other products in development. We expect our drug development expenses to fluctuate based on the timing
and size of our clinical trials, and anticipate </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>46</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=46,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=490616,FOLIO='46',FILE='DISK027:[05SAN5.05SAN1045]DS1045A.;11',USER='CSTCLAI',CD='16-MAR-2005;13:05' -->
<A NAME="page_ds1045_1_47"> </A>
<BR>

<P><FONT SIZE=2>that
such expenses will decrease in 2005 as compared to 2004 as the result of our strategic reorganization and associated reduction in workforce. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
were no expenditures related to Affinitak in 2004. Expenditures related to Affinitak in 2003 were $5.1&nbsp;million. The decrease was primarily due to a reduction in costs
associated with the development of Affinitak following the disappointing results from the first Phase III trial of Affinitak and the decision not to file an NDA in 2003. In October&nbsp;2004, we and
Lilly reported the results of a second Phase III clinical trial of Affinitak in combination with Gemzar and cisplatin in patients with NSCLC. Findings from this trial, which was sponsored by Lilly,
were similar to the results of the first Isis-sponsored Phase III study of Affinitak for NSCLC. As a result of these data, we will not invest further in the development of Affinitak. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development
expenditures related to alicaforsen for Crohn's disease totaled $5.5&nbsp;million and $6.5&nbsp;million for the years ended December&nbsp;31, 2004 and 2003,
respectively. The decrease of $1.0&nbsp;million was primarily due to the completion of our Phase III trials in December&nbsp;2004. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
incurred expenses related to our other products in development of $30.2&nbsp;million and $29.3&nbsp;million for the years ended December&nbsp;31, 2004 and 2003, respectively.
The increase of $900,000 was primarily the result of an increase in development activity related to Phase I and Phase II trials for our ulcerative colitis, diabetes, cancer and cardiovascular drugs,
as well as expenses related to other products in the early stages of development. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Ibis Division  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenditures in our Ibis division include costs for scientists, pass-through equipment costs, laboratory supplies, chemicals
and highly specialized information technology consultants to advance the research and development of our TIGER program. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
Ibis division's research and development expenditures for the year ended December&nbsp;31, 2004 totaled $10.0&nbsp;million, compared to $9.3&nbsp;million for 2003. The increase
of $700,000 was the result of our performance under our contracts with DARPA, the FBI, the NIAID, a part of the NIH, and the CDC, in support of our ongoing development of our TIGER program. We include
in our Ibis division expenses all contract-related costs we incur on behalf of government agencies in connection with the performance of our obligations under the respective contracts, including costs
for equipment to which the government retains title. We began reporting our Ibis division as a separate operating segment in 2004. Accordingly, we allocate a portion of R&amp;D Support and general and
administrative costs to this segment. In 2004, we allocated approximately $4.2&nbsp;million of costs related to R&amp;D Support and General and Administrative to Ibis. Prior to 2004, we did not allocate
R&amp;D Support or general and administrative costs to our separate operating segments. We believe that it would be impractical to obtain comparative information for prior periods, and that such
comparisons between any period in 2004 and the comparable periods in prior years for R&amp;D support costs and general and administrative expenses by segment would be meaningless; therefore, we do not
discuss these comparisons below. We expect our costs for our Ibis division to increase as we continue to expand this business. </FONT></P>

<UL>

<P><FONT SIZE=2><I> R&amp;D Support  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our research and development expenses, we include support costs such as rent, repair and maintenance for buildings and equipment, utilities, depreciation of
laboratory equipment and facilities, amortization of our intellectual property, information technology costs, procurement costs and waste disposal costs. We call these costs R&amp;D Support costs.
Generally these costs represent approximately 17% to 23% of our total annual research and development expense. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>47</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=47,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=27267,FOLIO='47',FILE='DISK027:[05SAN5.05SAN1045]DS1045A.;11',USER='CSTCLAI',CD='16-MAR-2005;13:05' -->
<A NAME="page_ds1045_1_48"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth information on R&amp;D Support costs for the years ended (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Personnel costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,450</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,844</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Occupancy</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,409</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,734</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,946</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,710</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Insurance</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,179</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,132</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Other</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,694</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,760</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="66%"><FONT SIZE=2>Total R&amp;D support costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>27,678</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>25,180</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R&amp;D
Support costs for the year ended December&nbsp;31, 2004 totaled $27.7&nbsp;million, compared to $25.2&nbsp;million for 2003. The increase of $2.5&nbsp;million was primarily
due to increased personnel, facilities and equipment depreciation and patent amortization costs, which are all costs that support the entire research and development organization. We allocated
$3.3&nbsp;million of our 2004 R&amp;D Support costs to our Ibis division as a result of reporting Ibis as a separate segment beginning in 2004. Prior to 2004, we did not allocate R&amp;D Support costs to
our separate operating segments. We believe that it would be impractical to obtain comparative information for prior periods, and that such comparisons between any period in 2004 and the comparable
periods in prior years for R&amp;D Support costs by segment would be meaningless; therefore, we do not discuss these comparisons. We expect R&amp;D Support costs to decrease in 2005 as a result of our
strategic reorganization and reduction in workforce announced in January&nbsp;2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2004, our R&amp;D Support costs by segment were as follows (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31,<BR>
2004</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Drug Discovery and Development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>24,374</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Ibis Division</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>3,304</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%"><FONT SIZE=2>Total R&amp;D support costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>27,678</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<UL>

<P><FONT SIZE=2><I> General and Administrative Expenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses include corporate costs required to support our company, our employees and our stockholders. These costs include personnel and
outside costs in the areas of business development, legal, human resources, investor relations and finance. Additionally, we include in general and administrative expenses such costs as rent, repair
and maintenance of buildings and equipment, depreciation, utilities, information technology and procurement costs that we need to support the corporate functions listed above. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
and administrative expenses for the year ended December&nbsp;31, 2004 totaled $9.6&nbsp;million compared to $9.3&nbsp;million for 2003. The increase of $300,000 as compared
to 2003 was primarily related to our Sarbanes-Oxley Act Section&nbsp;404 implementation activities. We allocated $924,000&nbsp;million of our 2004 general and administrative costs to our Ibis
division as a result of reporting Ibis as a separate segment beginning in 2004. Prior to 2004, we did not allocate general and administrative costs to our separate operating segments. We believe that
it would be impractical to obtain comparative information for prior periods, and that such comparisons between any period in 2004 and the comparable periods in prior years for general and
administrative costs by segment would be meaningless; therefore, we do not </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>48</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>discuss
these comparisons. We expect general and administrative expenses to decrease in 2005 as a result of our strategic reorganization and reduction in workforce announced in January&nbsp;2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the year ended December&nbsp;31, 2004, our general and administrative expenses by segment were as follows (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31,<BR>
2004</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Drug Discovery and Development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>8,658</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Ibis Division</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>924</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="74%"><FONT SIZE=2>Total general and administrative expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>9,582</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
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<UL>

<P><FONT SIZE=2><I> Compensation Related to Stock Options  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation benefit for the year ended December&nbsp;31, 2004 was $6,000, compared to compensation expense of $913,000 for the year ended December&nbsp;31,
2003. The changes in compensation expense (benefit) were primarily related to the effects of using variable accounting to account for stock options associated with the employee stock option exchange
program initiated in April&nbsp;2003. We accounted for options affected by the employee stock option exchange program as variable stock options in accordance with Accounting Principles Board, or
APB, Opinion No.&nbsp;25 and Financial Accounting Standards Board Interpretation, or FIN, No.&nbsp;44. APB 25 and FIN 44 require us to account for these exchanged options as variable stock
options. Variable stock options can result in significant increases and decreases in compensation expense, as a result of the variability of our stock price. We also recorded nominal expense in 2003
related to stock options granted in prior years to consultants, and we accounted for these options in accordance with Emerging Issues Task Force Abstract No.&nbsp;96-18, or EITF
96-18. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Restructuring Activities  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fourth quarter of 2004, we recorded a $32.4&nbsp;million charge for restructuring activities resulting from our strategic decision to reorganize and
refocus our resources to advance our most promising second-generation drugs and to continue our development of antisense technology. The 2004 charge for restructuring activities consists of
non-cash write-downs of tangible and intangible assets that are non-essential to our current focus, including excess or idle equipment, inventories, patent costs, and certain
prepaid expenses. The 2003 operating expenses included a $1.8&nbsp;million charge for restructuring activities. We expect to incur additional charges relating
to restructuring activities during the first quarter of 2005, including those associated with employee termination costs, the consolidation of our facilities, termination of certain contractual
obligations, and the closure of our research and development laboratory in Singapore. We expect that our cost containment measures will significantly decrease our cash use in 2005 as compared to 2004. </FONT></P>

<P><FONT SIZE=2><B>Investment Income  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment income for the years ended December&nbsp;31, 2004 and 2003 was $3.0&nbsp;million and $5.1&nbsp;million, respectively. The $2.1&nbsp;million
decrease in investment income in 2004 compared to 2003 was primarily due to our lower average cash balance in 2004 compared to 2003. </FONT></P>


<P><FONT SIZE=2><B>Interest Expense  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense for the year ended December&nbsp;31, 2004 was $22.6&nbsp;million, compared to $18.7&nbsp;million for the same period in 2003. The
$3.9&nbsp;million increase in interest expense in 2004 compared to 2003 was primarily due to the effect of a higher debt balance during 2004 than during </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>49</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>2003
related to an increase in the loan to fund our Lilly research collaboration, offset by a decrease in the carrying value of our term loan from Silicon Valley Bank. A decrease in the average
interest rate on our debt offset, in part, the effect of a higher average debt balance. The decrease in the average debt interest rate was primarily due to the retirement, in the fourth quarter of
2003, of higher interest rate debt with proceeds from our $32.0&nbsp;million term loan from Silicon Valley Bank secured in December&nbsp;2003. The debt we retired in the fourth quarter of 2003
consisted of convertible partner debt that carried interest rates ranging from 8.5% to 12%. The Silicon Valley Bank term loan bears interest at the prime rate, which was 5.25% at December&nbsp;31,
2004. The loan is convertible to a fixed interest rate at our option at any time at the then-applicable prime rate plus 1.25%. In 2004, $13.0&nbsp;million of the $22.6&nbsp;million in
interest expense did not require cash payment. This represents the accrual of interest expense related to the $100.0&nbsp;million loan Lilly has made available to us to fund the research
collaboration. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
plan to draw the remaining $5.0&nbsp;million from Lilly in March&nbsp;2005, which will bring our total due to Lilly under our loan agreement to $100.0&nbsp;million. Our loan to
Lilly is due in August&nbsp;2005. We can repay our Lilly research collaboration loan at our option in either cash or our common stock at a fixed conversion price of $40 per share. If we draw down
the remaining amount available under the loan, we could repay the loan for 2.5&nbsp;million shares of our common stock. We expect to substantially reduce our debt obligations in 2005 as a result of
the repayment of our Lilly loan, combined with principal payments we are obligated to make on our loan with Silicon Valley Bank. Accordingly, we expect our interest expense to decrease in 2005. </FONT></P>


<P><FONT SIZE=2><B>Net Loss Applicable to Common Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2004 and 2003, we reported a net loss of $142.5&nbsp;million and $95.0&nbsp;million, respectively. Our net loss
applicable to common stock was $142.9&nbsp;million for the year ended December&nbsp;31, 2004, and $95.7&nbsp;million for 2003, including $361,000 and $694,000, respectively, of accreted
dividends on preferred stock. The decrease in accreted dividends in 2004 from 2003 was the result of our agreement in June&nbsp;2004 with a subsidiary of Elan to acquire Elan's minority interest in
Orasense and HepaSense. In connection with this agreement, Elan transferred its shares of Isis Series&nbsp;B preferred stock to a third party. Immediately upon transfer, these shares converted into
1,055,502 shares of Isis common stock, eliminating the 5% in-kind dividend. The increase in the net loss applicable to common stock in 2004 from 2003 was primarily the result of a decrease
in revenue, increase in operating expenses, decrease in interest income, and increase in interest expense as described previously. In addition, during 2004 and 2003, we incurred charges of
$32.4&nbsp;million and $1.8&nbsp;million, respectively, related to restructuring activities. In 2003, we incurred a non-cash loss on investments of $2.4&nbsp;million related to the
impairment of our investments in ATL and Hybridon. In 2004, we incurred a non-cash loss on investments of $5.1&nbsp;million principally related to the impairment of our equity investment
in Alnylam, reflecting the decrease in the market value of Alnylam's stock in 2004, which we believe was primarily a result of financial market conditions related to biotechnology companies. Our
Alnylam alliance, established in 2004 to develop RNAi drugs, provides us with an opportunity to realize substantial value from our pioneering work in antisense mechanisms and oligonucleotide chemistry
and is an example of Isis' strategy to participate in all areas of RNA-based drug discovery. </FONT></P>

<P><FONT SIZE=2><B>Net Operating Loss Carryforward  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2004, we had federal, foreign and California tax net operating loss carryforwards of approximately $517.1&nbsp;million, $530,000 and
$140.4&nbsp;million, respectively. We also had federal and California research credit carryforwards of approximately $23.5&nbsp;million and $10.0&nbsp;million, respectively. The net operating
losses, research credit carryforwards, and capitalized research expense make up the majority of our deferred tax assets. Subject to the limitation described below, we will use the net </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>50</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>operating
loss and research credits, and realize the benefit of these deferred tax assets if we become profitable. We fully reserved all of our deferred tax assets, as their realization is uncertain.
Our federal tax loss carryforwards and our research credit carryforwards will begin expiring in 2007 and 2005, respectively, unless previously utilized. Our foreign tax losses may be carried forward
indefinitely and used to offset future taxable profits, provided there is no substantial change in ownership. Our California tax loss carryforwards will begin expiring in 2005, unless utilized. Our
net operating loss and tax credit carryforwards will be subject to an annual limitation regarding utilization against taxable income in future periods due to "change of ownership" provisions of the
Tax Reform Act of 1986. We believe that such limitation will not have a material adverse impact on the benefits that may arise from our net operating loss and tax credit carryforwards. However, there
may be additional limitations arising from any future changes in ownership that may have a material adverse impact on us. </FONT></P>

<P><FONT SIZE=2><I>Years Ended December&nbsp;31, 2003 and December&nbsp;31, 2002  </I></FONT></P>

<P><FONT SIZE=2><B>Revenue  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue for the year ended December&nbsp;31, 2003 was $50.0&nbsp;million, compared to $80.2&nbsp;million for 2002. The decrease of
$30.2&nbsp;million was primarily due to the reduction in revenue associated with the clinical development of Affinitak and the conclusion of Elan's participation in the Orasense and HepaSense
collaborations in late 2002. We did not have revenue associated with Orasense and HepaSense in 2003 as a result of the conclusion of Elan's participation in the joint ventures. New revenue sources not
present in 2002 offset, in part, the decreases in total revenue in 2003. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and Development Revenue under Collaborative Agreements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the category research and development revenue under collaborative agreements, for the year ended December&nbsp;31, 2003, we earned $49.5&nbsp;million,
compared to $67.8&nbsp;million for 2002. The decrease of $18.3&nbsp;million was primarily due to the reduction in revenue associated with the clinical development of Affinitak. In
March&nbsp;2003, we announced the results of our Phase III clinical trial of Affinitak to treat patients with non-small cell lung cancer, which were not sufficient to support a single-
study new drug application. New sources of revenue not present in 2002 slightly offset the previously described decreases in revenue. New sources of revenue from our Antisense Drug Discovery
collaborations included: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>an
upfront fee and milestone payments from ITRI;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
milestone achieved in the development of LY2181308, as part of our research collaboration oncology expansion with Lilly;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
milestone achieved in our drug discovery collaboration with Amgen; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>an
upfront fee from the expansion of our antisense drug development partnership with OncoGenex. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New
revenue sources from our Ibis division resulted from the expansion of work to continue the advancement of our TIGER technology, which included work for government agencies such as
the CDC, FBI, and DARPA. Our work for DARPA continued to be a collaborative effort with SAIC and accounted for approximately 16% and 6% of our revenue in 2003 and 2002, respectively. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and Development Revenue from Affiliates  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development revenue from affiliates consisted of revenue associated with our two collaborations with Elan, Orasense and HepaSense. Elan concluded its
participation in the HepaSense and Orasense collaborations in late 2002, in conjunction with its restructuring efforts. As a result, we reacquired product rights to ISIS 14803 for hepatitis C and the
oral formulation of ISIS 104838 from the HepaSense and Orasense joint ventures, respectively. We did not earn revenue from these affiliates in 2003. During 2002, we recognized $8.9&nbsp;million and
$3.0&nbsp;million as revenue from Orasense and HepaSense, respectively. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>51</FONT></P>

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<UL>

<P><FONT SIZE=2><I> Licensing and Royalty Revenue  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenue from licensing activities and royalties was $523,000 for the year ended December&nbsp;31, 2003, compared with $417,000 in 2002. </FONT></P>

<P><FONT SIZE=2><B>Operating Expenses  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses were $129.0&nbsp;million and $131.0&nbsp;million for the years ended December&nbsp;31, 2003 and 2002, respectively. The decrease of
$2.0&nbsp;million was primarily due to our implementation of an expense reduction plan during the second quarter of 2003, the completion of our development activities for Affinitak, and the
termination of our GeneTrove database product offering in November&nbsp;2002. Increased clinical development expenses for many of our other products and increased costs in the Ibis division
partially offset the decrease in operating expenses. Increased expenses of $3.9&nbsp;million and $430,000 for compensation related to stock options and restructuring activities, respectively,
further offset the decrease in operating expenses. In order to analyze and compare our results of operations to other similar companies, we believe that it is important to exclude compensation expense
or benefit related to stock options from operating expenses because it is based on the variability of our stock price rather than operations. We also believe that it is important to exclude
restructuring activities because these costs are directly related to isolated events. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and Development Expenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2003, we reported total research and development expenditures of $117.0&nbsp;million, compared to $124.1&nbsp;million
reported in 2002. Our research and development expenses consisted of costs for antisense drug discovery, antisense drug development, our Ibis division and related R&amp;D Support costs. The antisense drug
discovery costs included costs associated with our GeneTrove program. The decrease of $7.1&nbsp;million in 2003 over 2002 was primarily due to the termination of our GeneTrove product offering and
reorganization of the GeneTrove program in November&nbsp;2002, our implementation of an expense reduction plan in April&nbsp;2003, and a decrease in our total Affinitak related expenses. Increased
clinical development expenses for many of our other
products and our increased efforts in the Ibis division offset, in part, our decreases in research and development expenditures. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Antisense Drug Discovery  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Antisense drug discovery costs included in research and development expenses for the year ended December&nbsp;31, 2003 totaled $36.8&nbsp;million compared to
$38.9&nbsp;million for 2002. The decrease of $2.1&nbsp;million in 2003 over 2002 was principally a result of our planned expense reductions started in the second quarter of 2003 and the
termination of our GeneTrove database product offering and reorganization of the GeneTrove program in November&nbsp;2002. These decreases were offset in part by the increase in expenses to support
our research collaborations with Lilly, Amgen, and ITRI. </FONT></P>

<P><FONT SIZE=2><I>Antisense Drug Development  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, we had 11 drug candidates in various stages of development, including two drugs in Phase III clinical trials. In March&nbsp;2003, we announced the
results of our Phase III clinical trial of Affinitak for the treatment of non-small cell lung cancer. The results were not sufficient to support a single study new drug application.
Affinitak related expenses decreased in 2003 compared to 2002. We had two Phase III trials of alicaforsen, or ISIS 2302, in people with active Crohn's disease. We conducted one of these studies in
North America and the other in Europe. These studies were evaluating the safety and efficacy of alicaforsen. We also had Phase II programs ongoing for five additional products, Phase I programs
ongoing for three additional products, and preclinical studies </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>52</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>ongoing
for one project. In addition, during 2002 and 2003, Lilly reimbursed us for our costs related to our development of Affinitak. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development
costs included in research and development expenses totaled $45.1&nbsp;million and $55.3&nbsp;million for the years ended December&nbsp;31, 2003 and 2002, respectively.
The decrease of $10.2&nbsp;million was primarily due to planned expense reductions started in the second quarter of 2003 driven by a reduction in clinical development activity related to Affinitak.
These decreases were offset, in part, by increased clinical development expenses for our other products, mainly alicaforsen for Crohn's disease and several products in Phase II and earlier stages of
development. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
planned expense reductions began in April&nbsp;2003 when we initiated a restructuring effort in response to the disappointing results from our Phase III trial of Affinitak. As a
result, we had a small reduction
in our workforce, which primarily represented positions that were in support of the commercialization and manufacture of Affinitak. We completed our development activities for Affinitak in 2003. As a
result, expenditures related to Affinitak decreased from $22.6&nbsp;million in 2002 to $5.1&nbsp;million in 2003. The majority of the 2003 expenditures occurred in the first quarter of 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
second drug in Phase III clinical trials, alicaforsen for Crohn's disease, had development expenditures totaling $6.5&nbsp;million for the year ended December&nbsp;31, 2003,
compared to $4.8&nbsp;million for the same period of 2002. The increase of $1.7&nbsp;million was the result of an increase in the number of patients undergoing treatment in our two Phase III
trials. These trials were initiated in November&nbsp;2001 and June&nbsp;2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenditures
related to our other products in development totaled $29.3&nbsp;million for the year ended December&nbsp;31, 2003, compared to $23.1&nbsp;million for 2002. The
increase of $6.2&nbsp;million in 2003 over 2002 was mainly the result of increased expenses for Phase II trials of alicaforsen in ulcerative colitis, the Phase I trials for ISIS 113715 for type 2
diabetes and preclinical studies and initiation of a Phase I trial of ISIS 301012 for cardiovascular disease. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Ibis  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ibis expenditures for the year ended December&nbsp;31, 2003 totaled $9.9&nbsp;million, compared to $8.3&nbsp;million for 2002. The increase of
$1.6&nbsp;million was primarily related to Ibis' continued performance obligations under its multi-year government contracts with DARPA through our relationship with SAIC, awarded in
October&nbsp;2001, and USAMRIID, awarded in March&nbsp;2002, and new performance obligations under Ibis' agreement with the CDC, awarded in September&nbsp;2003, and with various other government
agencies. Included as Ibis expenditures were fixtures and equipment accounted for as pass-through costs that Ibis purchased for government agencies under the contractual terms of their
agreements. From June&nbsp;2000 through June&nbsp;2002, Ibis also received funding from its collaboration with Pfizer, which ended in June&nbsp;2002 in accordance with the terms of the
agreement. </FONT></P>

<UL>

<P><FONT SIZE=2><I> R&amp;D Support  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R&amp;D Support costs for the year ended December&nbsp;31, 2003 totaled $25.2&nbsp;million, compared to $21.6&nbsp;million for 2002. The increase of
$3.6&nbsp;million was primarily due to increases in our research and development efforts related to our efforts to prepare for the manufacture and commercialization of Affinitak in the first quarter
of 2003, our increased efforts related to our government contracts and increased depreciation resulting from the completion of laboratory build-outs. Our planned expense reductions
initiated in April&nbsp;2003 offset, in part, the increases in our research and development efforts noted above. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>53</FONT></P>

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<P><FONT SIZE=2><I> General and Administrative Expenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses for the year ended December&nbsp;31, 2003 totaled $9.3&nbsp;million compared to $8.5&nbsp;million for 2002. This
$800,000 increase was primarily a result of an increase in employees and related benefits in the first quarter of 2003. A reduction in the number of employees and a corresponding reduction in expense
as a result of the restructuring in April&nbsp;2003 offset, in part, the increases noted above. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Compensation Related to Stock Options  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compensation expense for the year ended December&nbsp;31, 2003 was $913,000, compared to compensation benefit of $3.0&nbsp;million for the year ended
December&nbsp;31, 2002. Compensation expense for 2003 primarily consisted of expense for stock options associated with the employee stock option exchange program we initiated in April&nbsp;2003.
We accounted for options affected by the 2003 option exchange program as variable stock options in accordance with Accounting Principles Board Opinion No.&nbsp;25, or APB 25, and Financial
Accounting Standards Board Interpretation No.&nbsp;44, or FIN 44. APB 25 and FIN 44 required us to account for these exchange options as variable stock options. Variable stock options can result in
significant increases and decreases in compensation expense, as a result of the variability of our stock price. We also recorded nominal expense in 2003 related to stock options granted in prior years
to consultants, and we accounted for these options in accordance with Emerging Issues Task Force Abstract No.&nbsp;96-18, or EITF 96-18. The compensation benefit in 2002
represented the reversal of previously recorded compensation expense for stock options accounted for
as variable stock options associated with the option exchange program we offered to non-officer employees in January&nbsp;2000. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Restructuring Activities  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2003, we initiated a restructuring in response to disappointing results from the first Phase III trial of Affinitak. As a result, we had a small
reduction in our workforce, which primarily represented positions that were in support of the commercialization and manufacture of Affinitak. Consequently, we incurred a restructuring charge of
$1.8&nbsp;million during the second quarter of 2003. We completed the utilization of the reserve related to this restructuring in the fourth quarter of 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2002, we announced the termination of our functional genomics database product offering and the reorganization of our functional genomics program. As a result, we
reduced our workforce by approximately 25 people. The restructuring plan included the write-down of certain intellectual property valued at $605,000. As a result of this plan, we incurred
a one-time charge of $1.4&nbsp;million for restructuring activities in the fourth quarter of 2002. We did not recognize any additional restructuring related charges for the year ended
December&nbsp;31, 2003, and completed utilization of the reserve related to this restructuring in the fourth quarter of 2003. </FONT></P>

<P><FONT SIZE=2><B>Equity in Loss of Affiliates  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late 2002, Elan concluded its participation in the Orasense and HepaSense collaborations in conjunction with its restructuring efforts. As a result, we
regained all rights to ISIS 104838, the compound that Elan and we were developing within Orasense. We also regained all rights to ISIS 14803, the compound that Elan and we were developing within
HepaSense. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
did not have equity in loss of affiliates for the year ended December&nbsp;31, 2003. As mentioned previously, we used the equity method of accounting for our investments in Orasense
and HepaSense in 2002. As a result, we recognized 80.1% of the total loss reported by Orasense and HepaSense as equity in loss of affiliates during 2002. Our equity in loss of affiliates for the year
ended December&nbsp;31, 2002 consisted of $9.5&nbsp;million for Orasense and $6.5&nbsp;million for HepaSense. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>54</FONT></P>

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<P><FONT SIZE=2><B>Investment Income  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment income for the years ended December&nbsp;31, 2003 and 2002 was $5.1&nbsp;million and $8.5&nbsp;million, respectively. The $3.4&nbsp;million
decrease in investment income in 2003 compared to 2002 was primarily due to our lower cash, cash equivalents and short-term investments balances in 2003 compared to 2002, and a decline in
interest rates as a result of then current market conditions. </FONT></P>

<P><FONT SIZE=2><B>Interest Expense  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense for the year ended December&nbsp;31, 2003 was $18.7&nbsp;million compared to $16.6&nbsp;million for the same period in 2002. The
$2.1&nbsp;million increase in interest expense in 2003 compared to 2002 was primarily due to a higher average debt balance during 2003 than during 2002. The increase in debt compared to 2002 related
primarily to additional drawdowns under our debt agreement with Lilly. A decrease in the average interest rate on our debt offset, in part, the effect of a higher average debt balance. The decrease in
the average debt interest rate was primarily due to the retirement in May&nbsp;2002 and July&nbsp;2002 of higher interest rate debt with proceeds from the issuance, in May&nbsp;2002, of our
5<SUP>1</SUP>/<SMALL>2</SMALL>% convertible notes due in 2009 and to the retirement, in the fourth quarter of 2003, of higher interest rate debt with proceeds from our $32.0&nbsp;million term loan from Silicon
Valley Bank secured in December&nbsp;2003. The debt retired in the fourth quarter of 2003 consisted of convertible partner debt that carried interest rates ranging from 8.5% to 12%. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2003, $7.5&nbsp;million of the $18.7&nbsp;million in interest expense did not require cash payment. This represents the accrual of interest expense related to the
$100.0&nbsp;million loan Lilly has made available to us to fund the research collaboration. </FONT></P>

<P><FONT SIZE=2><B>Loss on Prepayment of 14% Notes  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2002, we reported a $2.3&nbsp;million loss on prepayment of debt, which represented amounts related to unamortized
issuance costs, unamortized warrants and prepaid interest, on the prepayment of approximately $74.0&nbsp;million of our 14% Senior Subordinated Notes. No such prepayment occurred in 2003. </FONT></P>


<P><FONT SIZE=2><B>Gain on Prepayment of 12% Notes  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, we used $14.7&nbsp;million in cash to prepay $19.7&nbsp;million of 12% convertible debt Elan held. As a result, we reported a
$5.0&nbsp;million gain on prepayment of debt for the year ended December&nbsp;31, 2002. No such prepayment occurred in 2003. </FONT></P>

<P><FONT SIZE=2><B>Net Loss Applicable to Common Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2003 and 2002, we reported a net loss of $95.0&nbsp;million and $72.2&nbsp;million, respectively. Our net loss
applicable to common stock was $95.7&nbsp;million for the year ended December&nbsp;31, 2003, and $73.3&nbsp;million for 2002, including $694,000 and $1.1&nbsp;million, respectively, of
accreted dividends on preferred stock. The decrease in accreted dividends in 2003 from 2002 was the result of the August&nbsp;2002 conversion of 120,150 shares of Series&nbsp;A Convertible
Preferred Stock into 656,674 shares of our common stock using a conversion price of $12.54 per share</FONT><FONT SIZE=2><B>.</B></FONT><FONT SIZE=2> Included in the conversion was approximately
$2.1&nbsp;million in preferred stock dividends accrued in prior years. The increase in the net loss applicable to common stock was primarily a result of the increase in loss from operations, a
non-cash loss on investments of $2.4&nbsp;million related to the other-than-temporary impairment of our investments in ATL and Hybridon and the absence of a net
gain on debt extinguishment recorded in 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>55</FONT></P>

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<P><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have financed our operations with revenue from research and development under collaborative agreements and from affiliates. Additionally, we have earned
licensing and royalty revenue from the sale or licensing of our intellectual property. We have also financed our operations through the sale of our equity securities and the issuance of
long-term debt. From our inception through December&nbsp;31, 2004, we have earned approximately $443.1&nbsp;million in revenue from contract research and development and the sale and
licensing of our intellectual property. Since we were founded, we have raised net proceeds of approximately $593.2&nbsp;million from the sale of equity securities. We have borrowed approximately
$382.1&nbsp;million under long-term debt arrangements to finance a portion of our operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2004, we had cash, cash equivalents and short-term investments of $103.9&nbsp;million, working capital of $82.2&nbsp;million and a stockholders'
deficit of $72.1&nbsp;million. In comparison,
we had cash, cash equivalents and short-term investments of $215.5&nbsp;million, working capital of $194.0&nbsp;million and stockholders' equity of $67.2&nbsp;million as of
December&nbsp;31, 2003. Our $100.0&nbsp;million Lilly research collaboration loan, of which $95.0&nbsp;million was outstanding as of December&nbsp;31, 2004, is due in August&nbsp;2005. We
can repay this loan at our option in either cash or our common stock at a fixed conversion price of $40 per share. If we draw down the remaining amount available under the loan, we could repay the
loan for 2.5&nbsp;million shares of our common stock. Accordingly, the outstanding balance on this loan has been classified as a long-term obligation in the current quarter. The
decreases in our cash, cash equivalents and short-term investments and working capital were due primarily to cash used to fund our operations, to purchase property, plant, and equipment,
pursue patents, and to pay our debt and capital lease obligations. In addition, we made a $10.0&nbsp;million cash investment in Alnylam as part of our strategic alliance with them. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2004, our debt and other obligations totaled $258.9&nbsp;million, compared to $250.6&nbsp;million at December&nbsp;31, 2003. Our debt and other
obligations at December&nbsp;31, 2004 included current and long-term deferred contract revenue of approximately $11.8&nbsp;million and other contractual obligations. The increase in
our debt and other obligations was primarily due to additional draw downs from the $100.0&nbsp;million interest-free loan from Lilly, which we discounted to their present value by
imputing interest on the amounts at 20% and accreting to their face value over their term by recording interest expense. The increase in debt was partially offset by the repayment in January of
convertible partner debt from Boehringer Ingleheim International BmbH, or BI, of approximately $6.4&nbsp;million, the payment of principal and interest related to our standard operating debt, and
payments related to our capital leases. We also financed $3.2&nbsp;million in capital additions under our existing capital lease financing arrangement. We expect that capital lease obligations will
increase over time to fund capital equipment acquisitions required to support our business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
will continue to use lease financing as long as the terms remain commercially attractive. Based on our current operating plan with reasonable assumptions for new sources of revenue
and cash, we believe our resources will be sufficient to meet our anticipated requirements through at least mid 2007. The following table summarizes our contractual obligations as of
December&nbsp;31, 2004. The table </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>56</FONT></P>

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<P><FONT SIZE=2>provides
a breakdown of when obligations become due. A more detailed description of the major components of our debt is provided in the paragraphs following the table: </FONT></P>

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<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER"><FONT SIZE=1><B>Payments Due by Period </B></FONT><FONT SIZE=1>(in millions)</FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="46%" ALIGN="LEFT"><FONT SIZE=1><B>Contractual Obligations<BR> </B></FONT><FONT SIZE=1>(selected balances described below)</FONT><BR>
<HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Less than<BR>
1 year</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>1-3 years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>3-5 years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>After<BR>
5 years</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Lilly Research Collaboration Loan</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>95.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>95.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>5<SUP>1</SUP>/<SMALL>2</SMALL>% Convertible Subordinated Notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>125.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>125.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Standard Operating Debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>32.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>6.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>18.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>7.0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Capital Lease and Other Obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>2.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>0.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="46%"><FONT SIZE=2>Operating Leases</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>9.6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>2.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>4.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>1.9</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>0.4</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
contractual obligations consist primarily of our publicly traded convertible debt and Lilly research collaboration loan. We can repay our Lilly research collaboration loan at our
option in either cash or our common stock at a fixed conversion price of $40 per share. If we draw down the remaining amount
available under the loan, we could repay the loan for 2.5&nbsp;million shares of our common stock. In addition, we also have standard operating debt, capital leases and other obligations. Our
standard operating debt includes a term loan from Silicon Valley Bank, and our mortgage loan payable to another bank. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2003, we secured a $32.0&nbsp;million term loan from Silicon Valley Bank to retire our existing debt to BI and Elan. We amortize the term loan over sixty months. The
term loan requires equal monthly payments of principal plus accrued interest, and bears interest at the prime interest rate, which was 5.25% at December&nbsp;31, 2004. The loan is secured by
substantially all of our operating assets, excluding intellectual property, real estate, and certain equity investments. The loan is subject to certain liquidity requirements, including a requirement
that we maintain a minimum balance in an account at Silicon Valley Bank at all times equal to the outstanding balance of the loan. The loan is convertible to a fixed interest rate at our option at any
time at the then-applicable prime rate plus 1.25%. We used the proceeds from the loan to pay off existing debt to Elan of $5.1&nbsp;million plus accrued interest and to BI of
$22.6&nbsp;million plus accrued interest, of which $6.4&nbsp;million plus accrued interest we paid in January&nbsp;2004. The carrying value of the term loan at December&nbsp;31, 2004 and 2003
was $26.1&nbsp;million and $32.0&nbsp;million, respectively. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May&nbsp;2002, we completed a $125.0&nbsp;million convertible debt offering, which raised proceeds of approximately $120.9&nbsp;million, net of $4.1&nbsp;million in issuance
costs. The subordinated notes bear interest at 5.5%, which is payable semi-annually, and mature in May&nbsp;2009. Holders of the subordinated notes can, at any time, convert the notes
into shares of common stock at a conversion price of $16.625 per share. At December&nbsp;31, 2004 and 2003, the principal outstanding on the notes was $125.0&nbsp;million. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August&nbsp;2001, Lilly made available to us a $100.0&nbsp;million interest-free loan to fund the joint research collaboration between the two companies. The loan is
interest-free and is repayable, at our option, in cash or common stock at $40 per share at the end of four years. The term of the loan provides for quarterly draw downs by us. As of
December&nbsp;31, 2004, we had drawn down $95.0&nbsp;million of the $100.0&nbsp;million available. We discounted the $95.0&nbsp;million loan to its present value by imputing interest on the
amount at 20%, which represented market conditions in place at the time we entered into the loan. We are accreting the loan up to its face value over its term by recording interest expense. The
difference between the cash received and the present value of the loan represents value given to us by Lilly to help fund the research collaboration. We account for this difference as deferred revenue
and recognize it as revenue over the period of contractual performance. As of December&nbsp;31, 2004, the balance in long-term obligations was $83.2&nbsp;million and the balance in
deferred revenue was $11.8&nbsp;million. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>57</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to contractual obligations, we had outstanding purchase orders as of December&nbsp;31, 2004 for the purchase of services, capital equipment and materials as part of our
normal course of business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of our strategic decision to reorganize and refocus our resources to advance our most promising second-generation drugs and to continue the development of antisense technology,
we decided to close our research and development laboratory in Singapore during the first quarter of 2005 and terminate our agreement with the Singapore Economic Development Board, or EDB. To date, we
have received $1.5&nbsp;million in cash payments under our $8.0&nbsp;million grant from the EDB and do not anticipate receiving any additional payments under the agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
plan to continue to enter into more collaborations with partners to provide for additional revenue to us and we may be required to incur additional cash expenditures related to our
obligations under any of the new agreements we may enter into. We currently intend to use our cash and short-term equivalents to finance our activities. However, we may also pursue other
financing alternatives, like issuing additional shares of our common stock, issuing debt instruments, refinancing our existing debt, or securing lines of credit. Whether we use our existing capital
resources or choose to obtain financing will depend on various factors, including the future success of our business, the prevailing interest rate environment and the condition of financial markets
generally. </FONT></P>

<P><FONT SIZE=2><B>Prospective Information  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Restructuring Activities  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to incur additional charges relating to restructuring activities during the first quarter of 2005, including those associated with employee termination
costs, the consolidation of our facilities, termination of certain contractual obligations, and the closure of our research and development laboratory in Singapore. We expect that our cost containment
measures will significantly decrease our cash use in 2005 as compared to 2004. </FONT></P>

<P><FONT SIZE=2><A
NAME="du1045_item_7a._quantitative_and_qual__ite02669"> </A>
<A NAME="toc_du1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>Item 7A. Quantitative and Qualitative Disclosures About Market Risk    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to changes in interest rates primarily from our long-term debt arrangements and, secondarily, investments in certain
short-term investments. We invest our excess cash in highly liquid short-term investments that are typically held for the duration of the term of the respective instrument. We
do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions
to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not
subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive
instruments. </FONT></P>

<P><FONT SIZE=2><A
NAME="du1045_item_8._financial_statements_and_supplementary_data"> </A>
<A NAME="toc_du1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>Item 8. Financial Statements and Supplementary Data    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We filed our consolidated financial statements and supplementary data required by this item as exhibits hereto, and listed them under Item&nbsp;15(a)(1) and
(2), and incorporated them herein by reference. </FONT></P>

<P><FONT SIZE=2><A
NAME="du1045_item_9._changes_in_and_disagre__ite03576"> </A>
<A NAME="toc_du1045_3"> </A>
<BR></FONT><FONT SIZE=2><B>Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There has been no reported disagreements on any matter of accounting principles or procedures or financial statement disclosure in 2004 with our Independent
Auditors. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>58</FONT></P>

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<P><FONT SIZE=2><A
NAME="dw1045_item_9a._controls_and_procedures"> </A>
<A NAME="toc_dw1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>Item 9A. Controls and Procedures    <BR>    </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Evaluation of Disclosure Controls and Procedures  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on our evaluation as of the end of the period covered by this report on Form&nbsp;10-K, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) were effective as of December&nbsp;31, 2004 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Changes in Internal Controls  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures
subsequent to the date of the previously mentioned evaluation. </FONT></P>

<UL>

<P><FONT SIZE=2><B> Management's Report on Internal Control over Financial Reporting  </B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The management of Isis Pharmaceuticals,&nbsp;Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Exchange Act Rules&nbsp;13a&#151;15(f). Isis' internal control over financial reporting is a process designed under the supervision of Isis' Chief
Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Isis' financial statements for external purposes
in accordance with United States generally accepted accounting principles. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2004, management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of Isis' internal control over
financial reporting based on the criteria for effective internal control over financial reporting established in "Internal Control&#151;Integrated Framework," issued by the Committee of
Sponsoring Organizations (COSO) of the Treadway Commission. Based on the assessment, management determined that Isis maintained effective internal control over financial reporting as of
December&nbsp;31, 2004. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
management's assessment of the effectiveness of our internal control over financial reporting as of December&nbsp;31, 2004 has been audited by Ernst&nbsp;&amp; Young LLP, an
independent registered public accounting firm, as stated in their attestation report, which is included elsewhere herein. </FONT></P>

<P><FONT SIZE=2><B>Report of Independent Registered Public Accounting Firm on Internal Controls Over Financial Reporting  </B></FONT></P>

<P><FONT SIZE=2>To
the Shareholders and the<BR>
Board of Directors of Isis Pharmaceuticals,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting, that Isis Pharmaceuticals,&nbsp;Inc. (the
"Company") maintained effective internal control over financial reporting as of December&nbsp;31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment about the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audit. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>59</FONT></P>

<HR NOSHADE>
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<A NAME="page_dw1045_1_60"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1)&nbsp;pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)&nbsp;provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)&nbsp;provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December&nbsp;31, 2004, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December&nbsp;31, 2004, based
on the COSO criteria. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of
December&nbsp;31, 2004 and 2003 and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended
December&nbsp;31, 2004, and our report dated March&nbsp;3, 2005 expressed an unqualified opinion thereon. </FONT></P>

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<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>ERNST&nbsp;&amp; YOUNG LLP</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>San Diego, California</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>March&nbsp;3, 2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><A
NAME="dw1045_item_9b._other_information"> </A>
<A NAME="toc_dw1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>Item 9B. Other Information    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>60</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ea1045_part_iii"> </A>
<A NAME="toc_ea1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART III    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_10._directors_and___ea102273"> </A>
<A NAME="toc_ea1045_2"> </A></FONT> <FONT SIZE=2><B>Item 10. Directors and Executive Officers of the Registrant    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference the information required by this Item with respect to Directors and Audit Committee financial expert by reference from the information
under the caption "Election of Directors" and "Audit Committee", respectively, contained in our definitive Proxy Statement (the "Proxy Statement"), which we will file on or about April&nbsp;11, 2005
with the Securities and Exchange Commission in connection with the solicitation of proxies for our 2004 Annual Meeting of stockholders to be held on May&nbsp;26, 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
incorporate by reference the required information concerning our Code of Ethics from the information under the caption "Code of Ethics" contained in the Proxy Statement. We have filed
our Code of Ethics as an exhibit to this Report on Form&nbsp;10-K. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item
1, Part&nbsp;I of this Report contains the required information concerning our Executive Officers. We incorporate by reference the information required by this Item concerning
compliance with Section&nbsp;16(a) of the Securities Exchange Act of 1934, as amended, from the information under the caption "Section&nbsp;16(a) Beneficial Ownership Reporting Compliance"
contained in the Proxy Statement. </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_11._executive_compensation"> </A>
<A NAME="toc_ea1045_3"> </A>
<BR></FONT><FONT SIZE=2><B>Item 11. Executive Compensation    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference the information required by this item to the information under the caption "Executive Compensation" and "Compensation Committee
Interlock and Insider Participation" contained in the Proxy Statement. </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_12._security_ownership_of__ite04004"> </A>
<A NAME="toc_ea1045_4"> </A>
<BR></FONT><FONT SIZE=2><B>Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference the information required by this item to the information under the captions "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" contained in the Proxy Statement. </FONT></P>

<P><FONT SIZE=2><B>Securities Authorized for Issuance Under Equity Compensation Plans  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding outstanding options and shares reserved for future issuance under our equity compensation plans as of
December&nbsp;31, 2004. </FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="35%" ALIGN="LEFT"><FONT SIZE=1><B>Plan Category<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares<BR>
to be Issued<BR>
Upon Exercise of<BR>
Outstanding Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average<BR>
Exercise Price of<BR>
Outstanding Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares<BR>
Remaining Available<BR>
for Future Issuance</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="35%"><FONT SIZE=2>Equity compensation plans approved by stockholders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>3,863,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(a)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>8.92</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>5,108,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(c)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="35%"><FONT SIZE=2>Equity compensation plans not approved by stockholders</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>4,804,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>(b)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>7.88</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>792,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="35%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="35%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>8,667,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>8.34</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>5,900,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="35%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Consists
of two Isis plans: 1989 Stock Option Plan and the 2002 Non-Employee Directors' Stock Option Plan.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Consists
of the 2000 Broad-Based Equity Incentive Plan, more fully described below.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>Of
these shares, 72,993 remained available for purchase under the 2000 Employee Stock Purchase Plan as of December&nbsp;31, 2004. The 2000 Employee Stock Purchase Plan incorporates
an evergreen </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>61</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ea1045_1_62"> </A>
<UL>

<P><FONT SIZE=2>formula
pursuant to which on each January&nbsp;1 for the first 9 anniversaries, we automatically increase the aggregate number of shares reserved for issuance under the plan by the lesser of
(i)&nbsp;1% of the total number of shares of Common Stock outstanding on such anniversary date or (ii)&nbsp;200,000 shares. </FONT></P>

</UL>

<P><FONT SIZE=2><B>Description of 2000 Broad-Based Equity Incentive Plan  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We adopted the 2000 Broad-Based Equity Incentive Plan, or the 2000 Plan, to provide our employees, officers, directors and consultants an opportunity to benefit
from increases in the value of our common stock through the granting of nonstatutory stock options, stock bonuses and rights to purchase restricted stock. At the time we adopted the 2000 Plan, we were
not required to seek the approval of our stockholders. The Board has delegated administration of the 2000 Plan to the Compensation Committee of the Board, and the Compensation Committee has delegated
administration of the 2000 Plan to the Non-Management Stock Option Committee with respect to certain option grants to employees who are not our executive officers. The Board has the power
to construe and interpret the 2000 Plan and, subject to the provisions of the 2000 Plan, to select the persons to whom stock awards are to be made, to designate the number of shares to be covered by
each stock award, to
establish vesting schedules, to specify the exercise price and the type of consideration to be paid to us upon exercise or purchase. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of December&nbsp;31, 2004, the 2000 Plan had 5,596,000 shares reserved for issuance, options to purchase an aggregate of 4,804,000 shares have been granted and were outstanding
under the 2000 Plan, options to purchase an aggregate of 394,000 shares have been exercised under the 2000 Plan, and 792,000 shares remained available for grant thereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options
granted under the 2000 Plan generally have a term of ten years, have an exercise price equal to the fair market value at the time of grant, can only be exercised with a cash
payment and vest at the rate of 25% per year after the first year and then at the rate of 2.08% per month thereafter during the optionee's employment or service as a consultant or term as an
affiliate. Options granted pursuant to the April&nbsp;2003 stock option exchange program as discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and in the Notes to Consolidated Financial Statements, expire on December&nbsp;31, 2008 and vested 33.34% on January&nbsp;1, 2004 and then at the rate of 2.78% per month during the
optionee's employment or service as a consultant or term as an affiliate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any change is made in the common stock subject to the 2000 Plan, or subject to any stock award, without the receipt of consideration by us (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of consideration by us), we will adjust the 2000 Plan appropriately in the class(es) and maximum number of securities subject to the
2000 Plan, and we will adjust the outstanding stock awards appropriately in the class(es) and number of securities and price per share of common stock subject to such outstanding stock awards. Our
Board will make such adjustments, and its determination will be final, binding and conclusive. We will not treat the conversion of any of our convertible securities as a transaction without receipt of
consideration. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of our dissolution or liquidation, all outstanding stock awards will terminate immediately prior to such event. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
sale, lease or other disposition of all or substantially all of our assets;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
merger or consolidation in which we are not the surviving corporation; or </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>62</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ea1045_1_63"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>reverse
merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or otherwise. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>then
any surviving corporation or acquiring corporation will assume any stock awards outstanding under the 2000 Plan or will substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction for those outstanding under the 2000 Plan). In the event any surviving corporation or acquiring corporation refuses to assume such stock
awards or to substitute similar stock awards for those outstanding under the 2000 Plan, then with respect to stock awards held by participants whose continuous service has not terminated, we will
accelerate the vesting of such stock awards in full (and, if applicable, the time during which such stock awards may be exercised) and the stock awards will terminate if not exercised (if applicable)
at or prior to such event. With respect to any other stock awards outstanding under the 2000 Plan, such stock awards will terminate if not exercised (if applicable) prior to such event. In addition,
as of December&nbsp;31, 2004, approximately 4,804,000 stock awards granted under the 2000 plan will be accelerated in full if a transaction described above occurs, even if the surviving corporation
assumes such award. </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_13._certain_relati__ea102116"> </A>
<A NAME="toc_ea1045_5"> </A>
<BR></FONT><FONT SIZE=2><B>Item 13. Certain Relationships and Related Transactions    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference the information required by this item to the information under the caption "Certain Relationships and Related Transactions" contained
in the Proxy Statement. </FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_14._principal_accountant_fees_and_services"> </A>
<A NAME="toc_ea1045_6"> </A>
<BR></FONT><FONT SIZE=2><B>Item 14. Principal Accountant Fees and Services    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We incorporate by reference the information required by this item to the information under the caption "Ratification of Selection of Independent Auditors"
contained in the Proxy Statement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ea1045_part_iv"> </A>
<A NAME="toc_ea1045_7"> </A>
<BR></FONT><FONT SIZE=2><B>PART IV    <BR>    </B></FONT></P>

<P><FONT SIZE=2><A
NAME="ea1045_item_15._exhibits_and_financial_statement_schedules"> </A>
<A NAME="toc_ea1045_8"> </A></FONT> <FONT SIZE=2><B>Item 15. Exhibits and Financial Statement Schedules    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)(1) Index to Financial Statements</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
submitted the consolidated financial statements required by this item in a separate section beginning on page&nbsp;F-1 of this Report. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)(2) Index to Financial Statement Schedules</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
omitted these schedules because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)(3) Index to Exhibits</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
Index to Exhibits on pages&nbsp;66 through 70. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b) Exhibits</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
listed the exhibits required by this Item under Item 15(a)(3). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c) Financial Statement Schedules</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>63</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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NAME="page_ec1045_1_64"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ec1045_signatures"> </A>
<A NAME="toc_ec1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on
Form&nbsp;10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 15th day of March, 2005. </FONT></P>

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<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>ISIS PHARMACEUTICALS, INC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><BR><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>STANLEY T. CROOKE</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="54%"><HR NOSHADE><FONT SIZE=2> Stanley T. Crooke, M.D., Ph.D.<BR></FONT> <FONT SIZE=2><I>Chairman of the Board, President and Chief Executive Officer (Principal executive officer)</I></FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>64</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ec1045_1_65"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ec1045_power_of_attorney"> </A>
<A NAME="toc_ec1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>POWER OF ATTORNEY    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stanley T. Crooke and B. Lynne Parshall, or any of them,
his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated. </FONT></P>

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<TH WIDTH="40%" ALIGN="CENTER"><FONT SIZE=1><B>Signatures</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="36%" ALIGN="CENTER"><FONT SIZE=1><B>Title</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Date</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" VALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>STANLEY T. CROOKE</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Stanley T. Crooke, M.D., Ph.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2>Chairman of the Board, President, and Chief Executive Officer<BR>
(Principal executive officer)</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2>March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> B. Lynne Parshall, J.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director, Executive Vice President, Chief Financial Officer and Secretary<BR>
(Principal financial and accounting officer)</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>SPENCER R. BERTHELSEN</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Spencer R. Berthelsen, M.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>RICHARD D. DIMARCHI</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Richard D. DiMarchi</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>CHRISTOPHER F. O. GABRIELI</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Christopher F. O. Gabrieli</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>FREDERICK T. MUTO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Frederick T. Muto</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JOHN C. REED, M.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> John C. Reed, M.D., Ph.D.</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>MARK B. SKALETSKY</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Mark B. Skaletsky</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD WIDTH="40%" VALIGN="CENTER"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>JOSEPH H. WENDER</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Joseph H. Wender</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="36%" VALIGN="CENTER"><FONT SIZE=2><BR>
Director</FONT></TD>
<TD WIDTH="2%" VALIGN="CENTER"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER" VALIGN="CENTER"><FONT SIZE=2><BR>
March 15, 2005</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>65</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_ee1045_1_66"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ee1045_index_to_exhibits"> </A>
<A NAME="toc_ee1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>INDEX TO EXHIBITS    <BR>    </B></FONT></P>

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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit Number</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="88%" ALIGN="CENTER"><FONT SIZE=1><B>Description of Document</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>3.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2>Amended and Restated Certificate of Incorporation filed June&nbsp;19, 1991.(1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
3.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certificate of Amendment to Restated Certificate of Incorporation filed April&nbsp;9, 2001.(19)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
3.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Bylaws.(19)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certificate of Designation of the Series&nbsp;C Junior Participating Preferred Stock.(17)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Specimen Common Stock Certificate.(1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Right Certificate.(17)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Subscription, Joint Development and Operating Agreement dated January&nbsp;14, 2000 among the Registrant, Elan Corporation, plc, Elan International Services, Ltd. and HepaSense, Ltd. (with certain confidential information deleted), together with the
related Securities Purchase Agreement, Convertible Promissory Note, Warrant to Purchase Shares of Common Stock, Registration Rights Agreement and License Agreements.(14)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Securities Purchase Agreement, dated August&nbsp;17, 2001, between the Registrant and Eli Lilly and Company.(20)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registration Rights and Standstill Agreement, dated August&nbsp;17, 2001, between the Registrant and Eli Lilly and Company.(20)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Loan Agreement, dated August&nbsp;17, 2001, between the Registrant and Eli Lilly and Company.(20)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registration Rights Agreement, dated May&nbsp;1, 2002, among the Registrant, UBS Warburg LLC, Robertson Stephens,&nbsp;Inc., Needham&nbsp;&amp; Company,&nbsp;Inc., and Roth Capital Partners, LLC.(16)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Indenture, dated as of May&nbsp;1, 2002, between the Registrant and Wells Fargo Bank Minnesota, National Association, as Trustee, with respect to the $125,000,000 5<SUP>1</SUP>/<SMALL>2</SMALL>% Convertible Subordinated Notes due 2009.(16)
</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
4.19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of 5<SUP>1</SUP>/<SMALL>2</SMALL>% Convertible Subordinated Note due 2009.(16)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Indemnification Agreement entered into between the Registrant and its Directors and Officers with related schedule.(1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.2*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrants 1989 Stock Option Plan, as amended.(2)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.3*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrants 1992 Non-Employee Directors Stock Option Plan, as amended.(4)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.4*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrants Employee Stock Purchase Plan.(10)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Employee Assignment of Patent Rights.(1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.6*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrants 2000 Broad-Based Equity Incentive Stock Option Plan and related form of option agreement.(10)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Imperial Bank Note Secured by Deed of Trust dated March&nbsp;24, 1997 in the amount of $6,000,000, together with the related Deed of Trust and Assignment of Rents dated March&nbsp;24, 1997.(5)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Imperial Bank Note Secured by Deed of Trust dated March&nbsp;24, 1997 in the amount of $3,706,620, together with the related Deed of Trust and Assignment of Rents dated March&nbsp;24, 1997.(5)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>66</FONT></P>

<HR NOSHADE>
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<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Asset Purchase Agreement between the Registrant and Gen-Probe Incorporated dated December&nbsp;19, 1997 (with certain confidential information deleted).(6)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Patent Rights Purchase Agreement between the Registrant and Gilead Sciences,&nbsp;Inc., dated December&nbsp;18, 1998 (with certain confidential information deleted).(9)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Rights Agreement dated as of December&nbsp;8, 2000 between the Registrant and American Stock Transfer&nbsp;&amp; Trust Company.(17)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Master Agreement between the Registrant and Hybridon,&nbsp;Inc., dated May&nbsp;24, 2001 (with certain confidential information deleted).(19)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Development and License Agreement, dated August&nbsp;14, 2001 between the Registrant and Eli Lilly and Company (with certain confidential information deleted).(20)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Subcontract Agreement, dated October&nbsp;25, 2001 between the Registrant and Science Applications International Corporation.(21)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Master Agreement dated October&nbsp;30, 2001 between the Registrant and Antisense Therapeutics Limited.(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Collaboration and License Agreement dated October&nbsp;30, 2001 between the Registrant and Antisense Therapeutics Limited (with certain confidential information deleted).(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Clinical Supply Agreement dated October&nbsp;30, 2001 between the Registrant and Antisense Therapeutics Limited (with certain confidential information deleted).(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Stock Purchase Agreement dated October&nbsp;30, 2001 between the Registrant and Antisense Therapeutics Limited.(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Collaboration and Co-development Agreement, dated November&nbsp;16, 2001 between the Registrant and OncoGenex Technologies&nbsp;Inc.(22)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Oligonucleotide Manufacturing and Supply Agreement dated December&nbsp;4, 2001 between the Registrant and Integrated DNA Technologies,&nbsp;Inc. (with certain confidential information deleted).(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.24</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amended and Restated IDT-Isis Licensing Agreement dated December&nbsp;4, 2001 between the Registrant and Integrated DNA Technologies,&nbsp;Inc. (with certain confidential information deleted).(24)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.26</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
License Agreement dated December&nbsp;31, 2001 between the Registrant and Eyetech Pharmaceuticals,&nbsp;Inc. (with certain confidential information deleted).(25)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.29</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amended and Restated Collaboration Agreement dated June&nbsp;17, 2002, between the Registrant and Eli Lilly and Company (with certain confidential information deleted).(27)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.31</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amended and Restated License Agreement among the Registrant, Orasense Ltd. and Elan Corporation Plc. dated October&nbsp;24, 2002 (with certain confidential information deleted).(30)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.32</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amended and Restated License Agreement among the Registrant, Orasense Ltd. and Elan Corporation Plc. dated October&nbsp;24, 2002 (with certain confidential information deleted).(30)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.35</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrant's restated 10b5-1 Trading Plan.(29)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.36</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrant's 2002 Non-Employee Directors' Stock Option Plan.(31)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.37</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrant's Form of 2002 Non-Employee Directors' Stock Option Agreement.(31)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<BR>
<P ALIGN="CENTER"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.38</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Waiver and Release Agreement dated June 5, 2003 between the Registrant and Eli Lilly and Company (with certain confidential information deleted).(32)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.39</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amendment Number One to Development and License Agreement dated June&nbsp;5, 2003 between the Registrant and Eli Lilly and Company (with certain confidential information deleted).(32)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.41</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Severance Agreement dated April 2003 entered into between the Registrant and its executive officers and certain key employees, together with related schedule.(32)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.42</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Grant letter dated September&nbsp;29, 2003 from the Centers for Disease Control and Prevention (with certain confidential information deleted).(33)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.43*</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amendment No.&nbsp;1 to Isis Pharmaceuticals&nbsp;Inc. 2000 Employee Stock Purchase Plan.(33)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.44</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Loan and Security Agreement dated December&nbsp;15, 2003 between the Registrant and Silicon Valley Bank, including the related negative pledge agreement.(12)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.45</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Grant letter dated October&nbsp;31, 2003 from the Singapore Economic Development Board to ISIS Pharmaceuticals Singapore Pte Ltd (with certain confidential information deleted)(12)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.47</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Subcontract No.&nbsp;44076514 dated February&nbsp;26, 2004 between Isis Pharmaceuticals,&nbsp;Inc. and Science Applications International Corporation (with certain confidential information deleted).(13)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.48</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Strategic Collaboration and License Agreement dated March&nbsp;11, 2004 between Isis Pharmaceuticals,&nbsp;Inc. and Alnylam Pharmaceuticals,&nbsp;Inc. (with certain confidential information deleted).(18)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.49</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Investor Rights Agreement dated March&nbsp;11, 2004 between Isis Pharmaceuticals,&nbsp;Inc. and Alnylam Pharmaceuticals,&nbsp;Inc.(23)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.50</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Securities Purchase Agreement dated June&nbsp;4, 2004 between Isis Pharmaceuticals,&nbsp;Inc. and Elan Pharmaceutical Investments&nbsp;II, Ltd.(26)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.51</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Development Agreement dated September&nbsp;30, 2004 between Isis Pharmaceuticals,&nbsp;Inc. and the National Institute of Allergy and Infectious Diseases (with certain confidential information deleted).(34)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.52</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Amendment No.&nbsp;1 to License Agreement between Isis and Eyetech</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.53</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Sale and Assignment Agreement between Isis and Drug Royalty USA,&nbsp;Inc., dated December&nbsp;21, 2004 (with certain confidential information deleted)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.54</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Security Agreement between Isis and Drug Royalty USA,&nbsp;Inc, dated December&nbsp;21, 2004 (with certain confidential information deleted)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.55</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Option Agreement for Options Granted after March&nbsp;8, 2005 under the 1989 Stock Option Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.56</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Option Agreement for Options Granted after March&nbsp;8, 2005 under the 2000 Broad-Based Equity Incentive Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.57</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Option Agreement for Options Granted after March&nbsp;8, 2005 under the 2002 Non-Employee Director's Stock Option Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
10.58</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Collaboration and License Agreement between Isis and Sarissa, dated Feb&nbsp;10, 2005</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
14.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Registrant's Code of Ethics and Business Conduct(12)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
21.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
List of Subsidiaries for the Registrant.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
23.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Consent of Independent Registered Public Accounting Firm</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
24.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Power of Attorney. Reference is made to page&nbsp;65.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
31.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section&nbsp;1350 as Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
31.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section&nbsp;1350 as Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
32.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Certification Pursuant to 18 U.S.C. Section&nbsp;1350 as Adopted Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="10%"><FONT SIZE=2><BR>
99.2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="88%"><FONT SIZE=2><BR>
Form of Confidentiality Agreement.(11)</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Registration Statement on Form&nbsp;S-1 (No.&nbsp;33-39640) or amendments thereto and incorporated herein by
reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to Registrant's Notice of Annual Meeting and Proxy Statement for the 2004 Annual Meeting of Stockholder's, filed with the SEC on April&nbsp;12, 2004, and
incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Not
used.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 1996 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 1997 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 1997 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 1998 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 1998 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 1998 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 1999 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Registration Statement on Form&nbsp;S-3 (No.&nbsp;333-71911) or amendments thereto and incorporated herein by
reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report Form&nbsp;10-K for the year ended Dec 31, 2003 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended March&nbsp;31, 2004 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K dated January&nbsp;28, 2000, as amended on October&nbsp;5, 2001, and incorporated herein by
reference. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>69</FONT></P>

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<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(15)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2000 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(16)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Registration Statement on Form&nbsp;S-3 (No.&nbsp;333-89066), originally filed on May&nbsp;24, 2002, or
amendment thereto and incorporated by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(17)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to Registrant's Report on Form&nbsp;8-K dated December&nbsp;8, 2000 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(18)</FONT></DT><DD><FONT SIZE=2>Filed
as Exhibit&nbsp;10.24 to Alnylam Pharmaceutical&nbsp;Inc.'s Registration Statement on Form&nbsp;S-1, File No.&nbsp;333-113162, and incorporated
herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(19)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's report on Form&nbsp;10-Q/A for the quarter ended June&nbsp;30, 2001 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(20)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K dated August&nbsp;29, 2001 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(21)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K filed October&nbsp;29, 2001 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(22)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K filed December&nbsp;12, 2001 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(23)</FONT></DT><DD><FONT SIZE=2>Filed
as Exhibit&nbsp;10.25 to Alnylam Pharmaceutical&nbsp;Inc.'s Registration Statement on Form&nbsp;S-1, File No.&nbsp;333-113162, and incorporated
herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(24)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K filed January&nbsp;4, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(25)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K dated January&nbsp;7, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(26)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2004 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(27)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(28)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K dated September&nbsp;16, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(29)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(30)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;8-K dated November&nbsp;6, 2002 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(31)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Annual Report on Form&nbsp;10-K for the year ended December&nbsp;31, 2001 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(32)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;10-Q for the quarter ended June&nbsp;30, 2003 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(33)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to the Registrant's Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2003 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(34)</FONT></DT><DD><FONT SIZE=2>Filed
as an exhibit to Registrant's Quarterly Report on Form&nbsp;10-Q for the quarter ended September&nbsp;30, 2004 and incorporated herein by reference.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>Indicates
management compensatory plans and arrangements as required to be filed as exhibits to this Report pursuant to Item 14(c). </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>70</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=70,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=15293,FOLIO='70',FILE='DISK027:[05SAN5.05SAN1045]EE1045A.;16',USER='CSTCLAI',CD='16-MAR-2005;15:29' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fa1045_isis_pharmaceuticals,_inc._ind__isi02679"> </A>
<A NAME="toc_fa1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.<BR>  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>    </B></FONT></P>

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<TH WIDTH="92%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="5%" ALIGN="CENTER"><FONT SIZE=1><B>Page</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2>Report of Independent Registered Public Accounting Firm</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2>F-2</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2><BR>
Consolidated Balance Sheets at December 31, 2004 and 2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2><BR>
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-4</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2><BR>
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2004, 2003 and 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-5</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2><BR>
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-6</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="92%"><FONT SIZE=2><BR>
Notes to Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=2><BR>
F-7</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=71,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=62266,FOLIO='blank',FILE='DISK027:[05SAN5.05SAN1045]FA1045A.;6',USER='EWILLIA',CD='15-MAR-2005;20:12' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fb1045_1_2"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fb1045_report_of_independent_r__fb102290"> </A>
<A NAME="toc_fb1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P><FONT SIZE=2>The
Board of Directors and Stockholders<BR>
Isis Pharmaceuticals,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Isis Pharmaceuticals,&nbsp;Inc. as of December&nbsp;31, 2004 and 2003, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December&nbsp;31, 2004. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Isis Pharmaceuticals,&nbsp;Inc.
at December&nbsp;31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December&nbsp;31, 2004, in conformity with
U.S. generally accepted accounting principles </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Isis Pharmaceuticals,&nbsp;Inc.'s internal
control over financial reporting as of December&nbsp;31, 2004, based on the criteria established in </FONT><FONT SIZE=2><I>Internal Control&#151;Integrated Framework</I></FONT><FONT SIZE=2>
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March&nbsp;3, 2005 expressed an unqualified opinion thereon. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT
SIZE=2>ERNST &amp; YOUNG LLP</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>San
Diego, California<BR>
March 3, 2005 </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-2</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=72,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=115265,FOLIO='F-2',FILE='DISK027:[05SAN5.05SAN1045]FB1045A.;7',USER='CSTCLAI',CD='16-MAR-2005;14:01' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fc1045_1_3"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fc1045_isis_pharmaceuticals,_inc._con__isi03214"> </A>
<A NAME="toc_fc1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.    <BR>    <BR>    CONSOLIDATED BALANCE SHEETS    <BR>    <BR>    (in thousands, except share data)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="86%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 ALIGN="CENTER"><FONT SIZE=2><B>ASSETS</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Current assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>27,250</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>33,117</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>76,633</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>182,387</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Contracts receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,048</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,657</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Inventory</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,722</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>13,995</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Other current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,956</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>7,405</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Total current assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>125,609</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>239,561</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Property, plant and equipment, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>28,454</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>34,790</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Licenses, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>26,104</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>28,363</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Patents, net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>19,097</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>22,374</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Deposits and other assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,854</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,479</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Investments in corporate securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,307</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,375</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="62%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>208,425</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>334,942</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 ALIGN="CENTER"><FONT SIZE=2><B>LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,967</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,720</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accrued compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,475</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,149</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accrued liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,238</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,527</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Current portion of long-term obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,546</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>16,477</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Current portion of deferred contract revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,190</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,684</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>43,416</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>45,557</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>5<SUP>1</SUP>/<SMALL>2</SMALL>% convertible subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>125,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>125,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Long-term obligations, less current portion</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>111,611</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>88,397</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Long-term deferred contract revenue, less current portion</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>531</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,810</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2><BR>
Stockholders' equity (deficit):</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Series B Convertible Exchangeable 5% Preferred stock, $0.001 par value; 4,605 shares authorized, no shares issued or outstanding at December 31, 2004; 16,620 shares authorized, 12,015 shares issued and outstanding at
December 31, 2003</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accretion of Series B Preferred stock dividends</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,560</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Common stock, $0.001 par value; 100,000,000 shares authorized 57,447,333 and 55,557,253 shares issued and outstanding at December 31, 2004 and 2003, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>56</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>623,706</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>604,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Deferred compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(72</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(294</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accumulated other comprehensive income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,623</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,476</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(698,447</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(555,583</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Total stockholders' equity (deficit)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(72,133</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>67,178</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="62%"><FONT SIZE=2>Total liabilities and stockholders' equity (deficit)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>208,425</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>334,942</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-3</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=73,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=794967,FOLIO='F-3',FILE='DISK027:[05SAN5.05SAN1045]FC1045A.;4',USER='CSTCLAI',CD='16-MAR-2005;14:03' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fe1045_1_4"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fe1045_isis_pharmaceuticals,_inc._con__isi04192"> </A>
<A NAME="toc_fe1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.    <BR>    <BR>    CONSOLIDATED STATEMENTS OF OPERATIONS    <BR>    <BR>    (in thousands, except for per share amounts)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Revenue:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Research and development revenue under collaborative agreements</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>32,617</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49,467</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>67,820</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Research and development revenue from affiliates</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11,942</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Licensing and royalty revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>10,007</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>523</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>417</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%"><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>42,624</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>49,990</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>80,179</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Expenses:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Research and development not including compensation (benefit) related to stock options of ($8), $673, and ($2,018) in 2004, 2003 and 2002, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>118,474</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>116,963</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>124,074</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>General and administrative not including compensation (benefit) related to stock options of $2, $240, and ($984) in 2004, 2003, and 2002, respectively</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,582</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,289</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,547</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Compensation (benefit) related to stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>913</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(3,002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Restructuring activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>32,427</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,803</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>1,373</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="53%"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>160,477</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>128,968</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>130,992</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Loss from operations:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(117,853</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(78,978</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(50,813</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Equity in loss of affiliates</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(16,011</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Investment income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,999</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,462</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(22,592</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(18,680</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(16,562</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Loss on investment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(5,057</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(2,438</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Loss on prepayment of 14% Notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(2,294</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Gain on prepayment of 12% Notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>4,976</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(142,503</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(94,996</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(72,242</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Accretion of dividends on preferred stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(361</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(694</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1,060</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Net loss applicable to common stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(142,864</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(95,690</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(73,302</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.73</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.35</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Shares used in computing basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>56,642</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>55,463</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>54,480</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-4</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=74,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=294918,FOLIO='F-4',FILE='DISK027:[05SAN5.05SAN1045]FE1045A.;5',USER='EWILLIA',CD='15-MAR-2005;20:02' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fg1045_1_5"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fg1045_isis_pharmaceuticals,_inc._con__isi04494"> </A>
<A NAME="toc_fg1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.    <BR>    <BR>    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)    <BR>    <BR>    Years Ended December&nbsp;31, 2004, 2003 and 2002    <BR>    <BR>    (in thousands)    <BR>
</B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Preferred stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Common stock</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Accumulated<BR>
other<BR>
comprehensive<BR>
income/(loss)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=3><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Total<BR>
stockholders'<BR>
equity<BR>
(deficit)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Description<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Dividend<BR>
Accretion</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Additional<BR>
paid in<BR>
capital</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Deferred<BR>
compensation</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Accumulated<BR>
deficit</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="4%" ALIGN="CENTER"><FONT SIZE=1><B>Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amount</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Balance at December 31, 2001</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>132</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>24,030</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2,933</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>53,750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>54</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>582,258</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(245</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>660</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(386,591</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>223,099</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive Loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Net loss applicable to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(73,302</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(73,302</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Change in unrealized gains and (losses)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>(1,268</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(1,268</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(74,570</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Dividends accrued on preferred stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1,060</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,060</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Deferred compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(3,188</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>3,188</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Options exercised and employee stock purchase plan</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>683</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>5,139</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>5,140</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Compensation benefit relating to the granting of options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(3,002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(3,002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Issuance of common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>126</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>3,750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>3,750</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Conversion of preferred stock into common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>(120</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>(12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(2,127</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>657</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>14,142</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Balance at December 31, 2002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>12</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>1,866</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>55,216</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>55</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>602,101</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(59</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>(608</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(459,893</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>155,477</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive Loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Net loss applicable to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(95,690</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(95,690</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Change in unrealized gains and (losses)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>4,084</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>4,084</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(91,606</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Dividends accrued on preferred stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>694</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>694</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Deferred compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,148</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(1,148</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Options exercised and employee stock purchase plan</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>341</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>1,699</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>1,700</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Compensation benefit relating to the granting of options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>913</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>913</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Balance at December 31, 2003</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>12</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>2,560</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>55,557</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>56</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>604,948</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(294</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>3,476</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(555,583</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>67,178</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive Loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Net loss applicable to common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(142,864</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(142,864</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="1%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=1>Change in unrealized gains and (losses)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>(853</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(853</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Comprehensive loss</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(143,717</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Dividends accrued on preferred stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>361</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>361</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Deferred compensation</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>(228</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>228</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Options exercised and employee stock purchase plan</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>834</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>4,051</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>4,051</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Compensation relating to the granting of options</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(6</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Conversion of preferred stock into common stock</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>(12</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>(12,015</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>(2,921</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>1,056</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>14,935</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=1>Balance at December 31, 2004</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><FONT SIZE=1>57,447</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="5%" ALIGN="RIGHT"><FONT SIZE=1>57</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=1>623,706</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(72</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=1>2,623</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(698,447</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=1>(72,133</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="4%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-5</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=75,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=494794,FOLIO='F-5',FILE='DISK027:[05SAN5.05SAN1045]FG1045A.;8',USER='CSTCLAI',CD='16-MAR-2005;14:03' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fi1045_1_6"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fi1045_isis_pharmaceuticals,_inc._con__isi02987"> </A>
<A NAME="toc_fi1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.    <BR>    <BR>    CONSOLIDATED STATEMENTS OF CASH FLOWS    <BR>    <BR>    (in thousands)    <BR>    </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="90%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=6 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER"><FONT SIZE=1><B>Years Ended December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=6 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(142,503</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(94,996</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(72,242</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=4><FONT SIZE=1>Adjustments to reconcile net loss to net cash used in operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,401</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,551</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>5,985</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Amortization of patents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,442</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,217</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>927</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Amortization of licenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,327</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,485</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,512</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Compensation (benefit) related to stock options</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>913</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(3,002</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Deferred interest on long-term debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>13,049</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>5,369</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,634</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Loss on prepayment of 14% notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,294</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Gain on prepayment of 12% notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(4,976</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued interest on prepayment of debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(34,706</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Equity in losses of affiliates</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>16,011</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Loss on investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>5,057</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,438</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Restructuring activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>32,427</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Non-cash expenses related to patents and fixed assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,275</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,813</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,622</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Gain on disposal of property, plant and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=1>Changes in operating assets and liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Contract receivable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(7,391</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>12,249</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(4,546</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Inventory</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(9,699</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(2,905</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(11,090</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Other current and long-term assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,373</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>962</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>7,106</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Accounts payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>3,247</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(1,804</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(2,147</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(674</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>819</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(2,316</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued liabilities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,711</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(267</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>2,812</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=1>Deferred contract revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(12,787</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(33,318</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(6,999</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%"><FONT SIZE=1>Net cash used in operating activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(101,751</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(95,474</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(94,381</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Investing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Purchase of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(72,479</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(152,910</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(200,563</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Proceeds from the sale of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>176,147</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>156,943</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>196,075</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Purchases of property, plant and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(3,526</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(7,554</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(36,834</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Licenses and other assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(6,411</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(6,404</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(9,536</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Strategic investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(10,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Investments in affiliates</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(5,193</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(9,511</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%"><FONT SIZE=1>Net cash provided by (used in) investing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>83,731</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(15,118</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(60,369</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Financing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Net proceeds from issuance of equity</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>4,051</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,700</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,890</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Proceeds from 5<SUP>1</SUP>/<SMALL>2</SMALL>% convertible subordinated notes</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>125,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Proceeds from long-term borrowing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>24,470</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>67,049</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>52,334</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Principal payments on prepayment of debt</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(52,704</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Principal payments on debt and capital lease obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(16,368</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(26,896</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(3,925</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="51%"><FONT SIZE=1>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>12,153</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>41,853</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>129,595</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(5,867</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(68,739</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>(25,155</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Cash and cash equivalents at beginning of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>33,117</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>101,856</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>127,011</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Cash and cash equivalents at end of year</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>27,250</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>33,117</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>101,856</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=6><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Supplemental disclosures of cash flow information</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Interest paid</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,990</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>12,778</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>39,333</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=6><FONT SIZE=1>Supplemental disclosures of non-cash investing and financing activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Additions to debt for licensing costs</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>1,050</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Additions to deposits and other assets from sale of equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>300</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Additions to other current assets from sale of equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>160</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Additions to long-term investment for acquired corporate securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Conversion of preferred stock into common stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>14,934</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>14,142</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Decrease in inventory and deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>8,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5><FONT SIZE=1>Decrease in property plant and equipment and notes payable</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>21,200</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-6</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=76,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=388242,FOLIO='F-6',FILE='DISK027:[05SAN5.05SAN1045]FI1045A.;6',USER='CSTCLAI',CD='16-MAR-2005;13:23' -->
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_fk1045_1_7"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="fk1045_isis_pharmaceuticals,_inc._not__isi02976"> </A>
<A NAME="toc_fk1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.    <BR>    <BR>    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    <BR>    <BR>    December&nbsp;31, 2004    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Organization and Significant Accounting Policies  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Basis of Presentation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include the accounts of Isis Pharmaceuticals,&nbsp;Inc. ("the Company") and its wholly-owned subsidiaries, Isis
Pharmaceuticals Singapore Pte&nbsp;Ltd., Hepasense,&nbsp;Ltd. ("Hepasense"), and Orasense,&nbsp;Ltd ("Orasense"). There were no current operations or results of operations for
Hepasense,&nbsp;Ltd. or Orasense,&nbsp;Ltd for the year ended December&nbsp;31, 2004. As more fully described in </FONT><FONT SIZE=2><I>Note&nbsp;8&#151;Restructuring
Activities,</I></FONT><FONT SIZE=2> the Company decided to close its Singapore operations in early 2005. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Organization and business activity  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis Pharmaceuticals was incorporated in California on January&nbsp;10, 1989. In conjunction with its initial public offering, Isis Pharmaceuticals was
reorganized as a Delaware corporation, as Isis
Pharmaceuticals,&nbsp;Inc. ("Isis" or the "Company"), in April&nbsp;1991. Isis was organized principally to develop human therapeutic drugs using antisense and combinatorial technology. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Basic net loss per share  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis follows the provisions of Statement of Financial Accounting Standards (SFAS) No.&nbsp;128 </FONT><FONT SIZE=2><I>Earnings per
Share</I></FONT><FONT SIZE=2>. Isis computes basic loss per share by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding during the period
("Basic EPS method"). Isis computes diluted earnings (loss) per common share using the weighted-average number of common and dilutive common equivalent shares outstanding during the period ("Diluted
EPS method"). Diluted common equivalent shares of 15.2&nbsp;million at December&nbsp;31, 2004 consisted of shares issuable upon exercise of stock options and convertible debt. As Isis incurred a
loss in the years ended December&nbsp;31, 2004, 2003 and 2002, Isis did not include diluted common equivalent shares in the computation of diluted net loss per share because the effect would be
anti-dilutive. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Contract revenue and expenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract revenue consists of non-refundable research and development funding and Isis records contract revenue as earned based on the performance
requirements of Isis' collaborative research and development contracts. Isis recognizes contract fees for which no further performance obligations exist when Isis receives the payments or when Isis is
reasonably certain it can collect the receivable. Isis records payments received in excess of amounts earned as deferred contract revenue. The Company expenses research and development costs as
incurred. For the years ended December&nbsp;31, 2004, 2003 and 2002, research and development costs of approximately $36.3&nbsp;million, $30.2&nbsp;million and $68.3&nbsp;million,
respectively, were related to collaborative research and development arrangements. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Revenue recognition  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis recognizes revenue when all of its contractual obligations are satisfied and collection of the underlying receivable is reasonably assured. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and development revenue under collaborative agreements  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis recognizes research and development revenue under collaborative agreements as it incurs the related expenses, up to contractual limits. Isis defers payments
received under these agreements that </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-7</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fk1045_1_8"> </A>

<P><FONT SIZE=2>relate
to future performance and records revenue as Isis earns it over the specified future performance period. Isis recognizes revenue that relates to nonrefundable, upfront fees over the period of
the contractual arrangements as Isis satisfies its performance obligations. Isis recognizes revenue that relates to milestones, under existing arrangements, upon completion of the milestone's
performance requirement. Isis recognizes revenue from arrangements entered into subsequent to June&nbsp;30, 2003 in accordance with Emerging Issues Task Force Issue No.&nbsp;00-21
("EITF 00-21") </FONT><FONT SIZE=2><I>Accounting for Revenue Arrangements with Multiple Deliverables.</I></FONT><FONT SIZE=2> This issue addresses the timing and method of revenue
recognition for revenue arrangements that include the delivery of more than one product or service. Isis sometimes enters into revenue arrangements that contain multiple deliverables. In these cases,
Isis recognizes revenue from each element of the arrangement as long as Isis can determine a separate value for each element, Isis has completed its obligation to deliver or perform on that element,
and Isis is reasonably assured of collecting the resulting receivable. Isis records revenue from federal research grants during the period in which it incurs the related expenditures. Isis recognizes
revenue from product sales as it ships the products. Isis has implemented the provisions of Staff Accounting Bulletin No.&nbsp;104 ("SAB 104"), which was issued in December&nbsp;2003. SAB 104
updates portions of the interpretive guidance included in Topic 13 of the codification of Staff Accounting Bulletin No.&nbsp;101 in order to make this interpretive guidance consistent with current
authoritative accounting guidance and SEC rules and regulations. SAB 104 provides interpretation on selected revenue recognition issues and when revenue is properly recognizable. Revenue should not be
recognized until it is realized or realizable and earned. It must meet the following criteria: 1)&nbsp;persuasive evidence of an arrangement exists, 2)&nbsp;delivery occurred or services were
rendered, 3)&nbsp;the seller's price to the buyer is fixed or determinable and 4)&nbsp;collectibility is reasonably assured. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of Isis' alliance with Eli Lilly and Company ("Lilly") in August&nbsp;2001, Lilly provided Isis a $100.0&nbsp;million interest free loan to fund the research collaboration.
As of December&nbsp;31, 2004, Isis had drawn down $95.0&nbsp;million on the $100.0&nbsp;million loan. Isis discounted the $95.0&nbsp;million loan to its net present value by imputing interest
on the amount at 20%, which represented market conditions in place at the time Isis entered into the loan. Isis accretes the loan up to its face value over its term by recording interest expense. The
difference between the cash received and the present value of the loan represents value Lilly gave to Isis to help fund the research collaboration. Isis accounts for this value as deferred revenue and
recognizes it as revenue over the period of performance. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Research and development revenue from affiliates  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In late 2002, Isis terminated its HepaSense and Orasense collaborations with Elan Corporation plc ("Elan") and as a result, Isis no longer earns revenue from
these collaborations. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Licensing and royalty revenue  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis recognizes licensing and royalty revenue immediately, if collectibility is reasonably assured, and if Isis is not required to provide services in the future. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Concentration of credit risk  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments that potentially subject Isis to concentrations of credit risk consist primarily of cash equivalents, short-term investments and
receivables. Isis places its cash equivalents and certain of its short-term investments with high credit-quality financial institutions. Isis invests its excess cash primarily in auction
and money market instruments, and municipal and floating rate bonds. Isis and its </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-8</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fk1045_1_9"> </A>

<P><FONT SIZE=2>audit
committee established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Cash, cash equivalents and short-term investments  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis considers all liquid investments with maturities of ninety days or less when purchased to be cash equivalents. Isis' short-term investments have
initial maturities of greater than ninety days from date of purchase. Isis classifies its securities as "available-for-sale" in accordance with SFAS&nbsp;115, </FONT> <FONT SIZE=2><I>Accounting for Certain Investments in Debt and Equity
Securities.</I></FONT><FONT SIZE=2> Isis carries these investments at fair market value with any
unrealized gains and losses recorded as a separate component of stockholders' equity. Fair value is based upon market prices quoted on the last day of the fiscal quarter. Isis uses the specific
identification method to determine the cost of debt securities sold. Isis includes gross realized gains and losses in investment income and these amounts have not been material. During the third
quarter of 2004, Isis recorded a non-cash loss on investments of $5.1&nbsp;million, principally related to the impairment of the Company's equity investment in Alnylam Pharmaceuticals,
Inc ("Alnylam"), compared to a non-cash loss on investments of $2.4&nbsp;million in 2003 related to the impairment of investments in Antisense Therapeutics Limited ("ATL")
and Hybridon,&nbsp;Inc. ("Hybridon"). The 2004 loss on investments reflected a decrease in the market value of Alnylam's stock in 2004, which Isis believes was primarily a result of financial market
conditions related to biotechnology companies. In the fourth quarter of 2004, Isis recorded a net unrealized gain of $1.4&nbsp;million related to its equity investment in Alnylam as a separate
component of stockholders' equity. This reflected the increase in the market value of the investment since the impairment in the third quarter of 2004. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Inventory valuation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis' inventory includes drugs with alternative uses that are used primarily for its clinical development activities and drug products it manufactures for its
partners under contractual terms. Isis states its inventory at the lower of cost or market, with cost determined under the first-in, first-out method. Isis reviews inventory
periodically and reduces the carrying value of items considered to be slow moving or obsolete to their estimated net realizable value. In the second quarter of 2003, Isis reduced the carrying value of
its raw materials related to Affinitak to zero. In the fourth quarter of 2004, Isis reduced the carrying value of its inventory by $21.0&nbsp;million
(</FONT><FONT SIZE=2><I>Note&nbsp;8&#151;Restructuring Activities).</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory
includes the following categories as of December&nbsp;31, 2004 and 2003 (net realizable value in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Raw materials</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,329</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,526</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Work in process</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,920</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Finished goods</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,393</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,549</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,722</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>13,995</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-9</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=79,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=612449,FOLIO='F-9',FILE='DISK027:[05SAN5.05SAN1045]FK1045A.;9',USER='CSTCLAI',CD='16-MAR-2005;13:30' -->
<A NAME="page_fk1045_1_10"> </A>
<UL>

<P><FONT SIZE=2><I> Property, plant and equipment  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment is stated at cost and consists of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="71%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="66%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Land</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,163</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,163</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Buildings and improvements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>30,305</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>29,859</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Equipment and computer software</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>27,234</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>49,108</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,959</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>3,356</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>60,661</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>83,486</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>Less accumulated depreciation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(32,207</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(48,696</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>28,454</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>34,790</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="66%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2003, Isis reduced to zero approximately $21.2&nbsp;million in buildings, building improvements and equipment related to the debt repayment waiver Lilly granted Isis for amounts
Lilly loaned Isis to fund the construction of a new manufacturing suite dedicated to the commercial production of Affinitak. </FONT><FONT SIZE=2><I>(Note&nbsp;6&#151;Collaborative
Arrangements and Licensing Agreements</I></FONT><FONT SIZE=2>). In the fourth quarter of 2004, Isis recorded a net write-down of $1.2&nbsp;million for excess or idle property and
equipment consisting of $2.9&nbsp;million less accumulated depreciation of $1.7&nbsp;million (</FONT><FONT SIZE=2><I>Note&nbsp;8&#151;Restructuring Activities).</I></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
of property, plant and equipment is provided on the straight-line method over estimated useful lives as follows: </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Building</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>31.5 years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Building improvements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>15 years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Manufacturing facilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>10 years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Equipment</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>5 years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Computer software</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>3 years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Furniture and fixtures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>5 years</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leasehold
improvements are depreciated using the shorter of the estimated useful life or remaining lease term. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Licenses  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis obtains licenses from third parties and capitalizes the cost related to exclusive licenses. Isis' license from Hybridon comprises the majority of the license
balance as of December&nbsp;31, 2004, 2003 and 2002. Isis amortizes capitalized licenses over their estimated useful life or term of the agreement, which for current licenses is between nine years
and 15&nbsp;years. Accumulated amortization related to licenses was $9.8&nbsp;million and $7.5&nbsp;million at December&nbsp;31, 2004 and 2003, respectively. Based on existing licenses,
estimated amortization expense related to licenses is $2.3&nbsp;million for each of the years ending December&nbsp;31, 2005, 2006, 2007, 2008 and 2009. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Patents  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis capitalizes costs consisting principally of outside legal costs and filing fees related to obtaining patents. Isis reviews its capitalized patent costs
regularly to determine that they include costs for patent </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-10</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fk1045_1_11"> </A>

<P><FONT SIZE=2>applications
Isis is pursuing. Isis evaluates costs related to patents that the company is not actively pursuing for impairment and writes off any of these costs, if appropriate. Isis amortizes patent
costs over their estimated useful lives of 10&nbsp;years, beginning with the date the patents are issued. The weighted average remaining life of issued patents was 6.1&nbsp;years and
6.5&nbsp;years at December&nbsp;31, 2004 and 2003, respectively. In the fourth quarter of 2004, Isis recorded a non-cash charge of $6.1&nbsp;million related to the
write-down of its patent costs to their estimated net realizable values (</FONT><FONT SIZE=2><I>Note&nbsp;8&#151;Restructuring Activities).</I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated
amortization related to patents was $5.4&nbsp;million and $4.4&nbsp;million at December&nbsp;31, 2004 and 2003, respectively. Based on existing patents, estimated
amortization expense related to patents is as follows (in thousands): </FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="77%" ALIGN="LEFT"><FONT SIZE=1><B>Years Ending December 31,<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amortization<BR>
(in thousands)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,362</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,318</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,184</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,062</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="77%"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>966</FONT></TD>
</TR>
</TABLE></DIV>
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<UL>

<P><FONT SIZE=2><I> Investment in affiliates  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis uses the equity method of accounting to account for its investments in 50% or less owned companies over which it has the ability to exercise significant
influence. Isis also accounted for investments in its joint ventures, Orasense and HepaSense, using the equity method of accounting. At December&nbsp;31, 2003, Isis had the following investments
accounted for using the equity method: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Orasense
and HepaSense </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;1999 and January&nbsp;2000, Isis and Elan formed Orasense,&nbsp;Ltd. and Hepasense,&nbsp;Ltd., respectively, both Bermuda limited companies. Each joint venture was
owned 80.1% by Isis and 19.9% by Elan. While Isis owned 80.1% of the outstanding common stock of Orasense and HepaSense, throughout the respective terms of the collaborations related to the joint
ventures, Elan and its subsidiaries retained significant minority investor rights that were considered "participating rights" as defined in EITF 96-16. Accordingly, Isis accounted for its
investment in each joint venture under the equity method of accounting for the year ended December&nbsp;31, 2002. In 2002, Elan concluded its participation in both the Orasense and HepaSense
collaborations. In June&nbsp;2004, Isis entered into an agreement with a subsidiary of Elan to acquire Elan's minority interest in Orasense and HepaSense. As a result, Isis owned 100% of Orasense
and HepaSense at December&nbsp;31, 2004 (</FONT><FONT SIZE=2><I>Note&nbsp;6&#151;Collaborative Arrangements and Licensing Agreements).</I></FONT></P>

<UL>

<P><FONT SIZE=2><I> Fair value of financial instruments  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis has determined the estimated fair value of its financial instruments. The amounts reported for cash, accounts receivable, accounts payable and accrued
expenses approximate the fair value because of their short maturities. Isis reports its investment securities at their estimated fair value based on quoted market prices of comparable instruments. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-11</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2><A
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<UL>

<P><FONT SIZE=2><I> Long-lived assets  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis periodically evaluates carrying values of long-lived assets including property, plant and equipment and intangible assets, when events and
circumstances indicate that these assets may have been impaired. Isis has adopted SFAS&nbsp;144, </FONT><FONT SIZE=2><I>Accounting for the Impairment of Long-Lived
Assets</I></FONT><FONT SIZE=2>. For the year ended December&nbsp;31, 2002, Isis recorded an impairment charge of $605,000 for the write-down of intellectual property related to the
restructuring of the GeneTrove program. In the fourth quarter of 2004, Isis recorded a charge of $11.5&nbsp;million related to the write-down of equipment and intangible assets to their
estimated net realizable values (</FONT><FONT SIZE=2><I>Note&nbsp;8&#151;Restructuring Activities).</I></FONT></P>

<UL>

<P><FONT SIZE=2><I> Use of estimates  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Consolidation of variable interest entities  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis has implemented the provisions of Financial Accounting Standards Board Interpretation ("FIN") No.&nbsp;46, </FONT><FONT SIZE=2><I>Consolidation of
Variable Interest Entities, an Interpretation of ARB No.&nbsp;51</I></FONT><FONT SIZE=2>, which addresses consolidation by business enterprises of variable interest entities either: (1)&nbsp;that
do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2)&nbsp;in which the equity investors lack an
essential characteristic of a controlling financial interest. As of December&nbsp;31, 2004, Isis had a collaborative arrangement with Ercole
Biotech,&nbsp;Inc. ("Ercole"), a development stage biopharmaceutical company developing drugs based on RNA splicing technology. Isis considers Ercole to be a Variable Interest Entity ("VIE") under
the provisions of FIN No.&nbsp;46. Pursuant to the terms of a Note and Warrant Purchase Agreement (the "Agreement"), during 2003 and early 2004, Isis made cash payments to Ercole of $500,000 and
$250,000 respectively, in exchange for a convertible promissory note (the "Note"). Isis expensed the payments when made. The Note is secured by all of Ercole's assets, including intellectual property
and licenses, and will convert into securities that Ercole issues in a qualified financing, as defined by the Agreement. Isis is not required to consolidate Ercole's results of operations under FIN
No.&nbsp;46. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Stock-based compensation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2000, Isis offered non-officer employees an opportunity to exchange certain of their existing
out-of-the-money stock options for new options with exercise prices at the then-current market value. These options are required to be accounted for as
variable stock options in accordance with Financial Interpretation No.&nbsp;44 ("FIN 44"), </FONT><FONT SIZE=2><I>Accounting for Certain Transactions Involving Stock Compensation&#151;an
Interpretation of APB Opinion No.&nbsp;25</I></FONT><FONT SIZE=2>. Isis reported the resulting compensation expense in the statement of operations. Variable stock options can result in significant
increases and decreases in compensation expense, subject to the variability of Isis' stock price. As of December&nbsp;31, 2002, optionholders had exchanged all of these options, or the options had
expired. As of December&nbsp;31, 2004 all of the exchanged, unexpired options were fully vested. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;2003, Isis implemented an employee stock option exchange program ("2003 option exchange program") to maintain one of Isis' key assets, its employee base, in a manner that
was sensitive to shareholder interests. The 2003 option exchange program allowed employees during the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-12</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2>offering
period, which began on April&nbsp;8, 2003 and ended on May&nbsp;8, 2003, to surrender options, granted prior to January&nbsp;5, 2002, which had higher exercise prices, in exchange for a
lesser number of options, which had lower exercise prices. Employees exchanged 2.2&nbsp;million options having a weighted-average exercise price of $14.89 for 1.0&nbsp;million options having an
exercise price of $5.15. The new options vest over three years beginning on January&nbsp;1, 2003 and expire on December&nbsp;31, 2008. Isis accounts for the affected options, until all these
options have been exercised or cancelled, using variable accounting consistent with the provisions of APB 25 and FIN 44</FONT><FONT SIZE=2><I>.</I></FONT><FONT SIZE=2> As a result, Isis recorded
non-cash compensation benefit of $8,000 in 2004 and non-cash compensation expense of approximately $886,000 in 2003 and will continue to account for the affected options using
variable accounting. These amounts are included in Compensation (benefit) related to stock options on the Consolidated Statements of Operations with compensation expense related to
non-employee options of $2,000 and $27,000 for 2004 and 2003, respectively. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
has adopted the disclosure-only provision of SFAS&nbsp;123, </FONT><FONT SIZE=2><I>Accounting for Stock-Based Compensation</I></FONT><FONT SIZE=2>("SFAS&nbsp;123").
Accordingly, Isis has not recognized compensation expense, except primarily for compensation expense related to the affected options from the 2000 and 2003 option exchange programs, for the Isis stock
option plans and the employee stock purchase plan ("ESPP"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Had
Isis determined compensation expense consistent with SFAS&nbsp;123, Isis would have reported the following proforma amounts for net loss and basic and diluted net loss per share
(in thousands, except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="83%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="53%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Net loss applicable to common stock&#151;as reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(142,864</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(95,690</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(73,302</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Net loss applicable to common stock&#151;pro forma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(150,045</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(101,099</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(95,329</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Basic and diluted net loss per share&#151;as reported</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(2.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1.73</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="53%"><FONT SIZE=2>Basic and diluted net loss per share&#151;pro forma</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(2.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(1.82</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.75</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of proforma disclosures, Isis estimated the fair value of each option grant and ESPP purchase rights on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="94%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Stock Options</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>ESPP</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="27%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="10%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Risk free interest rate</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4.3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3.8</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Dividend yield</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Volatility</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>62.4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>69.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>78.7</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>57.2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>49.5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>80.9</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="27%"><FONT SIZE=2>Expected Life</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6.4 years</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6.2 years</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5.4 years</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6 months</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6 months</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6 months</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted average fair value of options granted was $6.58 for 2004, $5.70 for 2003, and $11.34 for 2002. The weighted average fair value of the ESPP purchase rights was $4.67, $4.46,
and $5.60 for 2004, 2003 and 2002, respectively. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Comprehensive income (loss)  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS&nbsp;130, </FONT><FONT SIZE=2><I>Reporting Comprehensive Income</I></FONT><FONT SIZE=2> ("SFAS&nbsp;130") requires Isis to display comprehensive income
(loss) and its components as part of Isis' full set of consolidated financial statements. The measurement and presentation of net income (loss) did not change. Comprehensive income (loss) is </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-13</FONT></P>

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<P><FONT SIZE=2>comprised
of net income (loss) and certain changes in equity that are excluded from net income (loss). Specifically, SFAS&nbsp;130 requires unrealized holding gains and losses on Isis'
available-for-sale securities, which Isis reported separately in stockholders' equity, to be included in accumulated other comprehensive income (loss). Comprehensive income
(loss) for the years ended December&nbsp;31, 2004, 2003 and 2002 has been reflected in the Consolidated Statements of Stockholders' Equity. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Segment Information  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis operates in two separate segments; Drug Discovery and Development and its Ibis division. In accordance with SFAS&nbsp;131, </FONT> <FONT SIZE=2><I>Disclosure about Segments of an
Enterprise and Related Information</I></FONT><FONT SIZE=2>, Isis provides segment financial information and results for Drug Discovery and
Development and its Ibis division based on the segregation of revenues and expenses used for management's assessment of operating performance and operating decisions. Expenses shared by the segments
require the use of judgments and estimates in determining the allocation of expenses to the two segments. Different assumptions or allocation methods could result in materially different results by
segment. Isis does not include asset or liability information by reportable segment since Isis does not currently segregate this information by segment and it is not used for purposes of making
decisions about allocating resources to the segments and assessing their performance. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Impact of recently issued accounting standards  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;16, 2004, the Financial Accounting Standards Board ("FASB") issued SFAS&nbsp;123(R)</FONT><FONT SIZE=2><I>, Share-Based
Payment</I></FONT><FONT SIZE=2>("SFAS&nbsp;123(R)"), which is a revision of SFAS&nbsp;123. Generally, the approach in SFAS&nbsp;123(R) is similar to the approach described in SFAS&nbsp;123.
However, SFAS&nbsp;123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. This statement also eliminates the ability to account for share-based compensation transactions using APB
Opinion No.&nbsp;25. The statement is effective at the beginning of the first interim period beginning after June&nbsp;15, 2005. Early adoption will be permitted in periods in which financial
statements have not yet been issued. Isis expects to adopt SFAS&nbsp;123(R) on July&nbsp;1, 2005. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SFAS&nbsp;123(R)
permits public companies to adopt its requirements using one of two methods: 1)&nbsp;A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a)&nbsp;based on the requirements of SFAS&nbsp;123(R) for all share-based payments granted after the effective date and (b)&nbsp;based on the requirements of
SFAS&nbsp;123 for all awards granted to employees prior to the effective date of SFAS&nbsp;123(R) that remain unvested on the effective date, 2)&nbsp;A "modified retrospective" method which
includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS&nbsp;123 for purposes of pro
forma disclosures either (a)&nbsp;all prior periods presented or (b)&nbsp;prior interim periods of the year of adoption. Isis plans to adopt SFAS&nbsp;123 no later than July&nbsp;1, 2005, but
has not yet determined what method it will use. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
permitted by SFAS&nbsp;123, Isis currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognizes no
compensation cost for employee stock options. Accordingly, the adoption of SFAS&nbsp;123(R)'s fair value method may have a significant impact on its results of operations, although it will have no
impact on its overall financial position. The impact of adoption of SFAS&nbsp;123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.
However, had Isis adopted </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-14</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fm1045_1_15"> </A>
<BR>

<P><FONT SIZE=2>SFAS&nbsp;123(R)
in prior periods, the impact of that standard would have approximated the impact of SFAS&nbsp;123 as described in the disclosure of pro forma net income and earnings per share in
Note&nbsp;1 to the consolidated financial statements. SFAS&nbsp;123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash
flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.
While Isis cannot estimate what those amounts will be in the future, as a result of its accumulated losses to date, Isis has not recognized a benefit of tax deductions in excess of recognized
compensation cost in operating cash flows. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2004, the FASB issued SFAS No.&nbsp;151</FONT><FONT SIZE=2><I>, Inventory Costs</I></FONT><FONT SIZE=2> ("SFAS&nbsp;151"), an amendment of ARB No.&nbsp;43,
Chapter 4. This statement amends the guidance in ARB No.&nbsp;43 Chapter 4, </FONT><FONT SIZE=2><I>Inventory Pricing</I></FONT><FONT SIZE=2>, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). Paragraph&nbsp;5 of ARB No.&nbsp;43, Chapter 4, previously stated that ".. . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal to require treatment as current period charges. .." This statement requires that those items be recognized
as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this statement requires that allocation of fixed production overheads to the costs of conversion
be based on the normal capacity of the production facilities. The provisions of this statement will be effective for inventory costs during the fiscal years beginning after June&nbsp;15, 2005. Isis
does not believe that the adoption of this statement will have a material impact on its financial condition or results of operations. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
March&nbsp;2004, the FASB issued EITF 03-1, </FONT><FONT SIZE=2><I>The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments</I></FONT><FONT SIZE=2>. EITF 03-1, which was originally effective for interim and annual reporting periods beginning after June&nbsp;15, 2004 requires a
three-step model to determine other-than-temporary impairments for all current and future investments in marketable securities. In September&nbsp;2004, the FASB
delayed the requirement to record impairment losses under EITF 03-1 until new guidance is issued. Isis does not expect that the adoption of EITF 03-1 will have a material
impact on its operating results and financial position. </FONT></P>


<P><FONT SIZE=2><B>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis invests its excess cash in United States Government securities and debt instruments of financial institutions and corporations with strong credit ratings.
Isis has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to maximize trends in yields and
interest rates without compromising safety and liquidity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes the contract maturity of debt securities held by Isis as of December&nbsp;31, 2004: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="66%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>Less than 1 year</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>55</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>1&#151;3 years</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>3&#151;5 years</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="89%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-15</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=85,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=343467,FOLIO='F-15',FILE='DISK027:[05SAN5.05SAN1045]FM1045A.;10',USER='CSTCLAI',CD='16-MAR-2005;14:16' -->
<A NAME="page_fm1045_1_16"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
has an ownership interest of less than 20% each in three public and two private companies it conducts business with, and accounts for them under the cost method of accounting
according to APB 18. The companies include Alnylam, ATL and Hybridon, which are publicly-traded, and Santaris Pharma A/S ("Santaris") and OncoGenex Technologies,&nbsp;Inc. ("OncoGenex"), which are
privately-held. In determining if and when decreases in market value of Isis' equity positions below their cost are other-than-temporary, Isis examines historical
trends in stock prices, the financial condition and near term prospects of the issuers, and Isis' current need for cash. When Isis determines that a decline in value is
other-than-temporary, Isis recognizes an impairment loss in the current period operating results to the extent of the decline. See </FONT> <FONT SIZE=2><I>Note&nbsp;1&#151;Organization and Significant Accounting Policies</I></FONT><FONT SIZE=2> for a
discussion of impairment losses incurred in 2004 and 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following is a summary of Isis' investments accounted for as available-for-sale securities (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Unrealized</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>December 31, 2004<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Maturity<BR>
in Years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amortized<BR>
Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Estimated Fair<BR>
Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Gains</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Losses</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. corporate debt securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 or less</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>27,564</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(121</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>27,443</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. Treasury securities and obligations of U.S. government agencies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 or less</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>14,715</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(98</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>14,617</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%"><FONT SIZE=2>Total short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>42,279</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(219</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>42,060</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. corporate debt securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 to 2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>6,715</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,668</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. Treasury securities and obligations of U.S. government agencies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 to 3</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>28,169</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(264</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>27,905</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Equity securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>8,367</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,282</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>11,520</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%"><FONT SIZE=2>Total long-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>43,251</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,282</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(440</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>46,093</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>85,530</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,282</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(659</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>88,153</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="95%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Unrealized</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ROWSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>December 31, 2003<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Maturity<BR>
in Years</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Amortized<BR>
Cost</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%" ROWSPAN=2><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Estimated Fair<BR>
Value</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Gains</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Losses</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. corporate debt securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 or less</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>40,112</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>147</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>40,253</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. Treasury securities and obligations of U.S. government agencies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 or less</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>26,286</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>116</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>26,402</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%"><FONT SIZE=2>Total short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>66,398</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>263</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>66,655</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. corporate debt securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 to 2</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>50,793</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>487</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(16</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>51,264</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>U.S. Treasury securities and obligations of U.S. government agencies</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>1 to 5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>64,442</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>173</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(147</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>64,468</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Equity securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,424</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>2,722</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>6,146</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="33%"><FONT SIZE=2>Total long-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>118,659</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,382</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(163</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>121,878</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>185,057</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>3,645</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="6%" ALIGN="RIGHT"><FONT SIZE=2>(169</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>188,533</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-16</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=86,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=845438,FOLIO='F-16',FILE='DISK027:[05SAN5.05SAN1045]FM1045A.;10',USER='CSTCLAI',CD='16-MAR-2005;14:16' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fo1045_1_17"> </A> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments considered to be temporarily impaired at December&nbsp;31, 2004 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="99%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Less than 12 Months of temporary impairment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Greater than 12 Months of<BR>
temporary impairment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=3 ALIGN="CENTER"><FONT SIZE=1><B>Total temporary<BR>
impairment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Number of<BR>
Investments</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fair Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>Fair<BR>
Value</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Unrealized<BR>
Losses</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>U.S. corporate debt securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>31,922</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(168</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>31,922</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(168</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>U.S. Treasury securities and obligations of U.S. government agencies</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>29</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>26,714</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(205</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>14,408</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(157</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>41,122</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(362</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="21%"><FONT SIZE=2>Total Debt Securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>58</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>58,636</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(373</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>14,408</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(157</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>73,044</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(530</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4><FONT SIZE=2>Equity securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>474</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>474</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(129</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2>Total temporarily impaired securities</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>59</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>59,110</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(502</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>14,408</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(157</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>73,518</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(659</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=4><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
believes that the decline in value is temporary and primarily related to the change in market interest rates since purchase. Isis anticipates full recovery of amortized cost with
respect to these securities at maturity or sooner in the event of a change in the market interest rate environment. </FONT></P>

<P><FONT SIZE=2><B>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-Term Obligations and Commitments  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term obligations consisted of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>December 31,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Convertible partner debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2><I>Eli Lilly</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>95,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>73,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2><I>Boehringer Ingleheim</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,376</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="59%"><FONT SIZE=2>Total convertible partner debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>95,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>80,126</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Standard operating debt</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>32,181</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>38,392</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>5<SUP>1</SUP>/<SMALL>2</SMALL>% convertible subordinated notes</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>125,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>125,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Capital leases and other obligations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6,741</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>7,116</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>258,922</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>250,634</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Less: current portion</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(10,546</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(16,477</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Less: Eli Lilly debt classified as deferred revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(11,765</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(20,760</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Total Long-Term Obligations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>236,611</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>213,397</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>Convertible Partner Debt  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Lilly  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2001, Lilly made available to Isis a $100.0&nbsp;million loan facility to fund joint research between the two companies. The loan is
interest-free and payable, at Isis' option, in cash or common stock at $40 per share in August&nbsp;2005. The loan facility provides for quarterly draw-downs by Isis in
varying amounts. As of December&nbsp;31, 2004 and 2003, Isis had drawn down $95.0&nbsp;million and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-17</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=87,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=6834,FOLIO='F-17',FILE='DISK027:[05SAN5.05SAN1045]FO1045A.;8',USER='CSTCLAI',CD='16-MAR-2005;13:27' -->
<A NAME="page_fo1045_1_18"> </A>

<P><FONT SIZE=2>$73.8&nbsp;million,
respectively. Isis accounts for this loan using an imputed interest rate of 20%, consistent with market conditions in place at the time the loan agreement was entered into. Isis
carries the net present value of the draw-downs as a long-term obligation and records interest expense over the term of the loan. The difference between the cash received and
the present value of the loan represents value Lilly gave Isis to help fund the research collaboration. Isis accounts for this difference as deferred revenue and recognizes it as research and
development revenue under collaborative agreements over the period of performance. At December&nbsp;31, 2004 and 2003, the balance in long-term obligations related to this loan was
$83.2&nbsp;million and $53.0&nbsp;million, respectively, and the balance in deferred revenue was $11.8&nbsp;million and $20.8&nbsp;million, respectively. Isis can repay this loan at its option
in either cash or our common stock at a fixed conversion price of $40 per share. If Isis draws down the remaining amount available under the loan, it could repay the loan for 2.5 million shares of
Isis common stock. Accordingly, the outstanding balance on this loan has been classified as a long-term obligation on the accompanying consolidated balance sheet. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Elan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 1999 and 2000, in conjunction with the HepaSense and Orasense joint ventures, Elan made available to Isis credit facilities of up to $30.4&nbsp;million,
evidenced by convertible promissory notes. The terms of these notes provided for interest at 12% annually, with maturities through January&nbsp;2006. The notes were convertible into the common stock
of Isis at any time by either party, as defined by the underlying agreements. In July&nbsp;2002, Isis prepaid $19.7&nbsp;million of the then-outstanding debt with $14.7&nbsp;million
in cash, resulting in a gain of approximately $5.0&nbsp;million for the year ended December&nbsp;31, 2002. As of December&nbsp;31, 2002, there was $7.2&nbsp;million outstanding under the
Orasense credit facility. Isis paid these borrowings in full from the proceeds of the Company's term loan with Silicon Valley Bank in December&nbsp;2003. Isis can no longer borrow funds against
these credit facilities. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Boehringer Ingelheim  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 1997 and 1996, Isis borrowed a total of $22.6&nbsp;million under a $40.0&nbsp;million line of credit made available pursuant to the terms of its
collaborative agreement with Boehringer Ingelheim ("BI"). Borrowings under the line of credit bore interest at the seven year United States interbanking rate plus 2.0%, determined at the time each
advance was made, and ranged from 8.36% to 8.46%. Principal borrowings were repayable in cash or Isis common stock, at the option of Isis. In October&nbsp;2003, Isis repaid, in cash, the first
installment of $8.3&nbsp;million, plus interest. Isis repaid the remaining principal installments of $7.9&nbsp;million, plus interest, and $6.4&nbsp;million, plus interest, in
December&nbsp;2003 and January&nbsp;2004, respectively, using the proceeds of the Company's term loan with Silicon Valley Bank. </FONT></P>


<P><FONT SIZE=2><B>Standard Operating Debt  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, Isis obtained a $32.0&nbsp;million term loan from Silicon Valley Bank. The term loan is secured by substantially all of Isis' operating
assets, excluding intellectual property, real estate, and certain equity investments. The term loan bears interest at the prime rate (5.25% at December&nbsp;31, 2004), is payable in equal monthly
payments of principal and interest, matures in December&nbsp;2008, and is convertible at the election of Isis to a fixed rate at the then-applicable prime rate plus 1.25%. The term loan
is subject to certain liquidity and other covenants, including a requirement that Isis maintain a minimum balance in an account at the lending bank at all times equal to the outstanding balance of the
loan. Isis was in compliance with these covenants as of December&nbsp;31, 2004 and 2003. Isis used the proceeds of the loan to pay off the Elan and BI partner debt in late 2003 and early 2004. The
carrying </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-18</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=88,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=785922,FOLIO='F-18',FILE='DISK027:[05SAN5.05SAN1045]FO1045A.;8',USER='CSTCLAI',CD='16-MAR-2005;13:27' -->
<A NAME="page_fo1045_1_19"> </A>
<BR>

<P><FONT SIZE=2>value
of this loan at December&nbsp;31, 2004 and 2003 was $26.1&nbsp;million and $32.0&nbsp;million, respectively, which approximated fair value. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
December&nbsp;2002, Isis obtained a credit facility evidenced by promissory notes of up to $6.7&nbsp;million from a bank to refinance two existing notes. The loan is secured by
Isis' real property and bears interest at the prime rate plus 0.5% (5.75% at December&nbsp;31, 2004), is payable in monthly payments of principal and interest, with the final principal payment due
on December&nbsp;2006. Isis borrowed its final installment of $998,000 on this loan in January&nbsp;2003. The carrying value of this loan at December&nbsp;31, 2004 and 2003 was
$6.1&nbsp;million and $6.4&nbsp;million respectively, which approximated fair value. </FONT></P>

<P><FONT SIZE=2><B>Convertible Subordinated Notes  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2002, Isis completed a $125.0&nbsp;million convertible debt offering, which raised proceeds of approximately $120.9&nbsp;million, net of
$4.1&nbsp;million in issuance costs. Isis includes the issuance costs in the balance sheet under Deposits and Other Assets and is amortizing these issuance costs to interest expense over the life of
the debt. The subordinated notes mature in 2009 and bear interest at 5.5%, which is payable semi-annually. The notes are convertible, at the option of the note holders, into approximately
7.5&nbsp;million shares of common stock at a conversion price of $16.625 per share. At December&nbsp;31, 2004 and 2003, the principal and accrued interest outstanding on the notes was
$125.0&nbsp;million and $1.1&nbsp;million, respectively. The fair value of the subordinated notes was $104.9&nbsp;million and $101.2&nbsp;million as of December&nbsp;31, 2004 and 2003,
respectively. Isis did not include these convertible notes in the computation of diluted net loss per share because the effect would be anti-dilutive. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
used a portion of the net proceeds from the convertible notes to prepay amounts outstanding on its 14% Senior Subordinated Notes, and certain obligations under its credit facilities
with Elan. These early debt retirements resulted in a $2.3&nbsp;million loss on prepayment of 14% Notes and a $5.0&nbsp;million gain on prepayment of 12% Notes, and are included as such on the
accompanying Consolidated Statements of Operations for the year ended December&nbsp;31, 2002. </FONT></P>

<P><FONT SIZE=2><B>Capital Leases and Other Obligations  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2004 and 2003, Isis had approximately $5.8&nbsp;million and $6.3&nbsp;million outstanding, respectively, under various capital
equipment leases which bear interest at rates ranging from 5.64% to 9.82% and mature at various dates through 2008. At December&nbsp;31, 2004 and 2003, Isis had approximately $900,000 and $860,000,
respectively, under various contractual obligations, of which $700,000 represented amounts due to Integrated DNA Technologies,&nbsp;Inc. ("IDT") as part of the supply agreement entered into in
December&nbsp;2001 </FONT><FONT SIZE=2><I>(Note&nbsp;6&#151;Collaborative Arrangements and Licensing Agreements).</I></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-19</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=89,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=607040,FOLIO='F-19',FILE='DISK027:[05SAN5.05SAN1045]FO1045A.;8',USER='CSTCLAI',CD='16-MAR-2005;13:27' -->
<A NAME="page_fo1045_1_20"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Annual
debt and other obligation maturities at December&nbsp;31, 2004 are as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>105,546</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,533</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,555</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,288</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>125,000</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>258,922</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="82%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
leases equipment and certain office and lab space under non-cancelable operating and capital leases with terms through May&nbsp;2010. Two of the building leases have
two extension options for five years each. Annual future minimum payments under capital and operating leases as of December&nbsp;31, 2004 are as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="65%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Operating<BR>
Leases</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Capital Leases</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,759</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,735</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,802</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,571</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>2007</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>1,705</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>869</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>2008</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>993</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>190</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>2009</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>920</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Thereafter</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>391</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Total minimum payments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,570</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>6,365</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Less amount representing interest</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(524</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Present value of future minimum payments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,841</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Less current portion</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(3,408</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>Long-term portion</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>2,433</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="65%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rent
expense for the years ended December&nbsp;31, 2004, 2003, and 2002 was $3.1&nbsp;million, $3.2&nbsp;million, and $2.9&nbsp;million, respectively. Cost of equipment under
capital leases at December&nbsp;31, 2004 and 2003 was $23.9&nbsp;million and $20.7&nbsp;million, respectively. Accumulated depreciation of equipment under capital leases at December&nbsp;31,
2004 and 2003 was approximately $16.9&nbsp;million and $13.6&nbsp;million, respectively. </FONT></P>

<P><FONT SIZE=2><B>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stockholders' Equity  </B></FONT></P>


<P><FONT SIZE=2><I>Preferred Stock  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis is authorized to issue up to 15,000,000 shares of "blank check" Preferred Stock. As of December&nbsp;31, 2004, there were no Series&nbsp;A Convertible
Exchangeable 5% Preferred Stock or Series&nbsp;B Convertible Exchangeable 5% Preferred Stock shares issued or outstanding. Series&nbsp;C Junior Participating Preferred Stock is designated but not
outstanding. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-20</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fo1045_1_21"> </A>
<BR>
<UL>


<P><FONT SIZE=2><I> Series&nbsp;B Convertible Exchangeable 5% Preferred Stock  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2004, the holder of the Company's Series&nbsp;B Convertible Exchangeable Preferred Stock transferred its shares to a third party. Immediately
upon transfer, these shares converted into 1,055,502 shares of Isis common stock, eliminating the 5% in-kind dividend, thereby reducing future dilution of approximately 86,000 shares of
Isis common stock. Isis also cancelled a warrant the holder of the Company's Series&nbsp;B Convertible Exchangeable Preferred Stock held to purchase 14,881 shares of Isis common stock. In addition,
a warrant the holder of the Company's Series&nbsp;B Convertible Exchangeable Preferred Stock held to purchase 215,000 shares of Isis common stock expired unexercised in April&nbsp;2004. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Series&nbsp;C Junior Participating Preferred Stock  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2000, Isis adopted a Preferred Share Purchase Rights Plan (the "Plan"). The Plan provides for a dividend distribution of one preferred stock
purchase right (a "Right") for each outstanding share of Isis common stock, par value $0.001 per share (the "Common Shares"), held of record at the close of business on January&nbsp;10, 2001, and on
each subsequently issued share of Isis common stock. The Rights are not currently exercisable. Under certain conditions involving an acquisition or proposed acquisition by any person or group holding
20% or more of Isis' common stock, the Rights permit the holders (other than the 20&nbsp;percent holder) to purchase one one-hundredth of a share of Series&nbsp;C Junior Preferred
Stock, par value $0.001 per share (the "Preferred Shares"), at a price of $85 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. Each one
one-hundredth of a share of Preferred Shares has designations and powers, preferences and rights, and the qualifications, limitations and restrictions which make its value approximately
equal to the value of a Common Share. Under certain conditions, Isis' Board of Directors may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. </FONT></P>


<P><FONT SIZE=2><I>Common Stock  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2004 and 2003, Isis had 100,000,000 shares of common stock authorized, of which 57,451,671 and 55,557,253 were issued and outstanding,
respectively. As of December&nbsp;31, 2004, total common shares reserved for future issuance was approximately 14,573,000. </FONT></P>

<P><FONT SIZE=2><B><I>Stock Option Plans  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> 1989 Stock Option Plan and Other Employee Option Grants  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;1989 and as amended, Isis' Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that provides for the
issuance of non-qualified and incentive stock options for the purchase of up to 13,200,000 shares of common stock to its employees, directors, and consultants. The term of the plan is
scheduled to end in January&nbsp;2014. The 1989 Plan does not allow Isis to grant stock bonuses or restricted stock awards and prohibits Isis from repricing any options outstanding under the plan
unless the Company's stockholders approve the repricing. Options granted after December&nbsp;31, 1995 vest over a four-year period, with 25% exercisable at the end of one year from the
date of the grant and the balance vesting ratably thereafter. Options granted before January&nbsp;1, 1996 generally vested over a five-year period. Options granted after May&nbsp;26,
2004 have a term of seven years while options granted before May&nbsp;26, 2004 have a term of ten years. At December&nbsp;31, 2004, a total of 3,514,000 options were outstanding, options to
purchase 2,007,000 shares were exercisable, and 4,640,000 shares were available for future grant. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-21</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fq1045_1_22"> </A> </FONT></P>

<UL>

<P><FONT SIZE=2><I> 2000 Broad Based Equity Incentive Plan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2000, Isis adopted the 2000 Broad-Based Equity Incentive Plan (the "2000 Plan"), which provides for the issuance of non-qualified
stock options for the purchase of up to 3,990,000 shares of common stock to its employees, directors, and consultants. In May&nbsp;2002, the Board of Directors increased the 2000 Plan by 2,000,000
shares, authorizing up to 5,990,000 shares of common stock under the 2000 Plan for issuance to employees, directors, and consultants. Typically options expire 10&nbsp;years from the date of grant.
Options granted under this plan generally vest over a four-year period, with 25% exercisable at the end of one year from the date of the grant and the balance vesting ratably thereafter.
Options granted under this plan, pursuant to the April&nbsp;2003 stock option exchange program expire on December&nbsp;31, 2008 and vested 33.34% on January&nbsp;1, 2004 and then at the rate of
2.78% per month during the optionee's employment or service as a consultant, employee or director. At December&nbsp;31, 2004, a total of 4,804,000 options were outstanding, 3,086,000 shares were
exercisable, and 792,000 shares were available for future grant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
sale, lease or other disposition of all or substantially all of our assets;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>a
merger or consolidation in which we are not the surviving corporation; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>reverse
merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash or otherwise, </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2>then
any surviving corporation or acquiring corporation will assume any stock awards outstanding under the 2000 Plan or will substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction for those outstanding under the 2000 Plan). In the event any surviving corporation or acquiring corporation refuses to assume such stock
awards or to substitute similar stock awards for those outstanding under the 2000 Plan, then with respect to stock awards held by participants whose continuous service has not terminated, such stock
awards automatically vest in full (and, if applicable, the time during which such stock awards may be exercised) and the stock awards will terminate if not exercised (if applicable) at or prior to
such event. With respect to any other stock awards outstanding under the 2000 Plan, such stock awards will terminate if not exercised (if applicable) prior to such event. In addition, as of
December&nbsp;31, 2004, approximately 4,804,000 stock awards granted under the 2000 plan will be accelerated in full if a transaction described above occurs, even if the surviving corporation
assumes such award. </FONT></P>

<UL>

<P><FONT SIZE=2><I> 2002 Non-Employee Directors' Stock Option Plan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2001, Isis' Board of Directors adopted, and the stockholders subsequently approved, an amendment and restatement of the 1992
Non-Employee Directors' Stock Option Plan, which provides for the issuance of non-qualified stock options to Isis' non-employee directors. The name of the resulting
new plan is the 2002 Non-Employee Directors' Stock Option Plan, and it has an aggregate of 803,000 shares of common stock reserved for issuance. Options under this plan expire
10&nbsp;years from the date of grant. Options granted become exercisable in four equal annual installments beginning one year after the date of grant. At December&nbsp;31, 2004, a total of 349,000
options were outstanding, 166,000 of the shares issued under this plan were exercisable and 395,000 shares were available for </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-22</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fq1045_1_23"> </A>

<P><FONT SIZE=2>future
grant. The following table summarizes stock option activity for the years ended December&nbsp;31, 2002 through December&nbsp;31, 2004 (in thousands, except per share data): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="19%" ALIGN="CENTER"><FONT SIZE=1><B>Price Per Share</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average<BR>
Price Per Share</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at December 31, 2001</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,220</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.75 to $26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>9.88</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,197</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$6.87 to $22.19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(505</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$4.00 to $17.88</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Terminated</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(656</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$5.38 to $24.17</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at December 31, 2002</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,256</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.75 to $26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>11.34</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,724</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.12 to&nbsp;&nbsp;$7.85</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(35</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$4.00 to&nbsp;&nbsp;$6.81</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Terminated</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(3,734</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.75 to $26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at December 31, 2003</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,211</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.12 to $26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.66</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Granted</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2,163</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$4.30 to&nbsp;&nbsp;$9.50</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Exercised</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(508</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.12 to&nbsp;&nbsp;$8.15</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>Terminated</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(1,199</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.75 to $22.19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Outstanding at December 31, 2004</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>8,667</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>$3.12 to $26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="17%" ALIGN="RIGHT"><FONT SIZE=2>8.34</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="19%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="17%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes information concerning currently outstanding and exercisable options (in thousands, except contractual life and exercise price data): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=6 ALIGN="CENTER"><FONT SIZE=1><B>Options Outstanding</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ALIGN="CENTER"><FONT SIZE=1><B>Options Exercisable</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1><B>Range of Exercise Price<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Number<BR>
Outstanding As of<BR>
12/31/04</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average<BR>
Remaining<BR>
Contractual Life</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average<BR>
Exercise Price</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="14%" ALIGN="CENTER"><FONT SIZE=1><B>Number<BR>
Exercisable As of<BR>
12/31/04</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Weighted Average<BR>
Exercise Price</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>3.12&#151;$4.98</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>234</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7.73</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>4.18</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>68</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>4.05</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>4.76&#151;$7.52</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>5,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.32</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,594</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.38</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>7.22&#151;$10.82</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,550</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9.31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,194</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>9.55</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>10.88&#151;$16.30</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,148</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>4.39</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>12.86</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>1,065</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>12.85</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>16.35&#151;$18.70</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>228</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.10</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>17.36</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>169</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>17.43</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>21.05&#151;$26.65</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>227</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>6.97</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>21.19</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>169</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>21.19</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>8,667</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,259</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="13%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<UL>

<P><FONT SIZE=2><I> Employee Stock Purchase Plan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, Isis' Board of Directors adopted, and the stockholders subsequently approved, the 2000 Employee Stock Purchase Plan and Isis reserved 200,000 shares of
common stock for issuance thereunder. In each of the subsequent years, an additional 200,000 shares of common stock were reserved for the 2000 Employee Stock Purchase Plan, resulting in a total of
800,000 shares authorized in the plan. The plan permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at
the lower of 85% of fair market value at the beginning of the offering period or the end of each six-month purchase period. During 2004, 327,145 shares were issued under this plan to
employees at prices ranging from $4.47 to $4.86 per share. At December&nbsp;31, 2004, 72,993 shares were available for purchase under this plan. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-23</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=93,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=44513,FOLIO='F-23',FILE='DISK027:[05SAN5.05SAN1045]FQ1045A.;8',USER='CSTCLAI',CD='16-MAR-2005;13:33' -->
<A NAME="page_fq1045_1_24"> </A>

<P><FONT SIZE=2><I>Warrants  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2004, Isis entered into an agreement with a subsidiary of Elan to acquire Elan's minority interest in Orasense and HepaSense. In connection with
this agreement, Isis cancelled a warrant Elan held to purchase 14,881 shares of Isis common stock that was issued in 2000 as part of the joint venture collaboration between Isis and Elan to form
HepaSense. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2002, Isis issued a warrant to purchase 6,304 shares of common stock to Elan for the achievement of a development milestone related to the HepaSense joint venture between Isis and
Elan. As of December&nbsp;31, 2004, this warrant remained outstanding at an exercise price of $59.48 per share. The warrant expires April&nbsp;25, 2007. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
1999, Isis issued a warrant to purchase 215,000 shares of common stock to Elan as part of the joint venture collaboration between Isis and Elan to form Orasense. The warrant expired
unexercised on April&nbsp;19, 2004. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
1997 and 1998, Isis issued warrants to purchase 500,000 and 300,000 shares of common stock, respectively, in conjunction with a private debt financing agreement. The warrants expired
unexercised on November&nbsp;1, 2004 (</FONT><FONT SIZE=2><I>Note&nbsp;3&#151;Long-Term Obligations and Commitments).</I></FONT></P>

<P><FONT SIZE=2><B>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income Taxes  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant components of Isis' deferred tax assets as of December&nbsp;31, 2004 and 2003 are shown below (in thousands). Isis recognized valuation allowances
of $283.7&nbsp;million and $235.0&nbsp;million for 2004 and 2003, respectively, to offset the net deferred tax assets as realization of such assets is uncertain. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Capitalized research expense</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>43,132</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>86,827</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Net operating loss carryforwards</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>189,148</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>110,652</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Research and development credits</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>33,966</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>30,095</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Deferred revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,998</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>9,573</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Accrued restructuring</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>13,335</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Other, net</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>7,525</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>5,180</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Total deferred tax assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>293,104</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>242,327</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Deferred tax liabilities:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Intangible Assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(9,393</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(7,361</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Total deferred tax liabilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(9,393</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(7,361</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Total net deferred tax assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>283,711</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>234,966</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Valuation allowance for deferred tax assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(283,711</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>(234,966</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="60%"><FONT SIZE=2>Net deferred tax assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2004, approximately $7.1&nbsp;million of the valuation allowance for deferred tax assets related to stock option deductions which, when recognized, will be
allocated directly to additional paid-in capital. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2004, Isis had federal, foreign and California tax net operating loss carryforwards of approximately $517.1&nbsp;million, $530,000 and $140.4&nbsp;million,
respectively. Isis also had federal and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-24</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>California
research credit carryforwards of approximately $23.5&nbsp;million and $10.0&nbsp;million, respectively. The difference between the tax loss carryforwards for federal and California
purposes was attributable to the capitalization of research and development expenses for California tax purposes and a required 50% to 60% limitation on the utilization of California loss
carryforwards. The federal tax loss carryforwards and the research credit carryforwards will begin expiring in 2007 and 2005, respectively, unless previously utilized. The foreign tax losses may be
carried forward indefinitely and used to offset future taxable profits, provided there is no substantial change in ownership. The California tax loss carryforwards will begin expiring in 2005, unless
utilized. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to Sections 382 and 383 of the Internal Revenue Code, annual use of Isis' net operating loss and credit carryforwards may be limited due to cumulative changes in ownership of
more than 50%. Isis believes that changes in ownership have occurred, but believes that such limitations will not have a material impact upon the utilization of the carryforwards. </FONT></P>

<P><FONT SIZE=2><B>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collaborative Arrangements and Licensing Agreements  </B></FONT></P>


<P><FONT SIZE=2><I>Eli Lilly and Company  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2001, Isis entered into a broad strategic relationship with Lilly, including four key components: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;First,
Lilly purchased $75.0&nbsp;million of Isis common stock at $18 per share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Second,
Isis licensed to Lilly rights to Affinitak, which was being tested in a Phase III trial for the treatment of non-small cell lung cancer, and which Lilly has decided
to discontinue funding. Lilly paid Isis $25.0&nbsp;million in up-front fees for Affinitak and reimbursed Isis for Isis' Affinitak development costs. During 2003 and 2002, Isis earned
revenue of $11.1&nbsp;million and $31.9&nbsp;million, respectively, related to the reimbursement of Affinitak costs. Isis earned no revenue related to Affinitak during 2004. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third,
Isis initiated with Lilly a four-year antisense drug discovery collaboration in the areas of metabolic and inflammatory diseases and a related gene functionalization
and target validation collaboration to determine the function of up to 1,000 genes. Key achievements and developments under this collaboration include: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
2002, Lilly and Isis expanded this collaboration to include oncology and the license of LY2181308, our antisense inhibitor of survivin for which we earned a
$1.1&nbsp;million license fee.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
April&nbsp;2003, Isis earned a $1.5&nbsp;million milestone from Lilly in the development of LY2181308, the antisense inhibitor of survivin, as part of the research
collaboration oncology expansion. LY2181308 is the first compound from the partnership selected by Lilly for clinical development. In November&nbsp;2004, Lilly initiated Phase I clinical trials of
LY218308 in cancer patients, marking a significant milestone in the partnership and triggering a $1.5&nbsp;million milestone payment from Lilly to Isis. Isis' collaboration with Lilly also may
generate additional milestone payments aggregating up to $25.0&nbsp;million based on LY2181308 achieving specified regulatory and commercial milestones.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
July&nbsp;2003, Isis expanded the cancer research component of its antisense drug discovery collaboration with Lilly to include multiple antisense mechanisms, such as
RNAi and alternative splicing, as well as third generation antisense chemistries. We are currently jointly developing </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>F-25</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fq1045_1_26"> </A>
<UL>
<UL>

<P><FONT SIZE=2>antisense
drugs with Lilly that work through an RNAi mechanism or use our chemistries as potential follow-on drugs to LY2181308. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
May&nbsp;2004, Lilly and Isis announced the extension of our antisense drug discovery collaboration in cancer. During this extension, Isis and Lilly will continue to
characterize and develop RNase H, siRNA, and splicing modulating inhibitors for the treatment of cancer using second and third generation chemistries. An important component of this extension will be
the exploration of potential new anti-cancer drug targets using RNA-directed technologies.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
September&nbsp;2004, Lilly licensed from Isis LY2275796. This second-generation antisense anti-cancer drug candidate targets eIF-4E. Isis earned
a $750,000 payment from Lilly for the license. LY2275796 is the second compound from the partnership to be selected by Lilly for clinical development. Isis' collaboration with Lilly also may generate
additional milestone payments aggregating up to $20.3&nbsp;million based on LY2275796 achieving specified regulatory and commercial milestones. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fourth,
Lilly committed to lend Isis, interest-free, up to $100.0&nbsp;million over a four-year period to fund its obligations under the drug discovery
collaboration. Isis can repay this loan at its option in either cash or Isis common stock, at a fixed conversion price of $40 per share. During 2004, 2003 and 2002, Isis recorded revenue related to
the research collaboration loan of $13.0&nbsp;million, $7.5&nbsp;million, and $3.2&nbsp;million, respectively and corresponding interest expense during 2004, 2003, and 2002, of
$13.0&nbsp;million, $7.5&nbsp;million, and $3.2&nbsp;million, respectively. . </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsequent
to August&nbsp;2001, Isis and Lilly entered into additional agreements under the collaboration, as follows: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
September&nbsp;2002, Isis and Lilly entered into a supply agreement under which Isis agreed to manufacture Affinitak active pharmaceutical ingredient ("API") for Lilly.
The agreement called for Lilly to pay Isis $8.75&nbsp;million in cash for Affinitak raw materials that Isis would need to manufacture the API. Isis accounted for the $8.75&nbsp;million as deferred
revenue, and expected to
recognize this balance into revenue as it shipped Affinitak API to Lilly. Neither Isis nor Lilly expected to realize a margin from this transaction.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
addition, in September&nbsp;2002, Isis entered into a manufacturing loan agreement with Lilly. Under the terms of the loan agreement, Lilly loaned to Isis
$21.2&nbsp;million to build a new commercial scale manufacturing facility for Affinitak. During the period of May&nbsp;2002 through March&nbsp;2003, Isis completed construction of the
manufacturing suite and, as a result, incurred $21.2&nbsp;million in construction costs which Isis reflected as property, plant and equipment on its balance sheet as of December&nbsp;31, 2002.
Neither Isis nor Lilly expected to realize a margin from this transaction.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>In
March&nbsp;2003, after Isis announced disappointing results from its Phase III trial of Affinitak, Isis and Lilly reached a mutually beneficial renegotiation of their
manufacturing relationship, pursuant to which Lilly allowed Isis to keep the $8.75&nbsp;million of raw materials. Lilly also waived repayment of the $21.2&nbsp;million manufacturing loan it
provided to Isis to build the manufacturing facility. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>F-26</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
</UL>
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_fs1045_1_27"> </A> </FONT></P>

<UL>

<P><FONT SIZE=2>Isis
determined the estimated net realizable value of the Affinitak API should be written down to zero because: (i)&nbsp;Isis was moving away from first-generation drugs like Affinitak in favor of
second-generation drugs, rendering most of the raw materials obsolete; and, (ii)&nbsp;Isis already had sufficient inventory of raw materials to manufacture its second-generation drugs for the then
foreseeable future. Isis also determined there was no anticipated use of the manufacturing facility in the then-foreseeable future because Isis did not have a drug that required a
large-scale commercial manufacturing facility and the long term prospects for utilization of the facility were unknown. Since these write-offs were triggered by one event and there was no
impact to the statement of operations, Isis wrote-off the $8.75&nbsp;million of deferred revenue against the related raw material inventory and the $21.2&nbsp;million of
long-term debt against the related fixed assets. </FONT></P>

</UL>

<P><FONT SIZE=2><B><I>Antisense Drug Discovery Collaborations  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Singapore Economic Development Board  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2003, Isis received a grant of up to $8.0&nbsp;million over three years from the Singapore Economic Development Board ("Singapore EDB"),
which was intended to fund, in part, the broadening of two of Isis' RNA-based drug discovery and development programs: micro-RNA drug discovery and antisense drug discovery
targeting the coronavirus associated with Severe Acute Respiratory Syndrome, or SARS. In connection with this grant, Isis established Isis Pharmaceuticals Singapore Pte&nbsp;Ltd, a wholly-owned
subsidiary of Isis Pharmaceuticals,&nbsp;Inc. During 2004, Isis earned revenue of $1.5&nbsp;million from this grant. Isis earned no revenue from the grant in 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of a strategic decision to reorganize and refocus the Company's resources to advance its most promising second-generation drugs and to continue the development of antisense
technology, Isis
decided to close its research and development laboratory in Singapore during the first quarter of 2005 and terminate its agreement with the Singapore EDB. To date, Isis has received
$1.5&nbsp;million in cash payments under this $8.0&nbsp;million grant from the Singapore EDB and does not anticipate any additional payments, or additional revenue, under the agreement. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Industrial and Technology Research Institutes of Taiwan  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2003, Isis initiated a collaboration with the Industrial and Technology Research Institutes of Taiwan ("ITRI") to identify antisense candidates
targeting the coronavirus associated with SARS. The collaboration entitled Isis to an upfront payment, milestone payments, and the potential for future funding. During 2003, Isis earned revenue under
this collaboration of $2.0&nbsp;million, comprised of $1.0&nbsp;million for an up-front payment and $1.0&nbsp;million related to the achievement of certain milestones. The milestones
related to the identification of second-generation antisense drugs that inhibit SARS virus replication and the successful completion of preclinical studies evaluating aerosol and parenteral delivery
of antisense drugs as specified under the agreement. Isis earned no revenue during 2004 under this collaboration. This collaboration has ended in accordance with its terms. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Amgen  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, Isis entered into a three-year collaboration with Amgen,&nbsp;Inc. ("Amgen") to discover new antisense drugs. Amgen has the
right to develop and commercialize antisense drugs resulting from the collaboration. Under the terms of the agreement, Isis is entitled to receive milestone payments upon key clinical, research and
commercial achievements, as well as royalties on sales of any products resulting from the collaboration. During 2004 and 2003, Isis earned revenue of $783,000 and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-27</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fs1045_1_28"> </A>

<P><FONT SIZE=2>$1.9&nbsp;million,
respectively, related to quarterly research support and progress research milestones under this drug discovery collaboration. In December&nbsp;2004, Isis' collaboration with
Amgen ended in accordance with its terms. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Merck&nbsp;&amp; Co.,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2001, Isis licensed to Merck&nbsp;&amp; Co,&nbsp;Inc. ("Merck"), Isis' preclinical Type 2 diabetes antisense drug candidate, ISIS 113715. In
exchange for the license, Isis received an upfront payment. In addition, Isis received development funding and earned a development milestone. During 2002, Isis earned revenue of $840,000 under this
agreement. Isis reacquired full product rights to ISIS 113715 from Merck in December&nbsp;2002. As a result, no revenue was earned for the years ended December&nbsp;31, 2004 and 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;1998, Isis entered into a research collaboration with Merck to discover small molecule drug candidates to treat patients infected with HCV. The collaboration, which
concluded in May&nbsp;2003 in accordance with its terms, provided that Merck would pay Isis' annual research support and milestone payments. Within the collaboration, Isis and Merck designed,
synthesized, and evaluated novel compounds that Merck screened in its proprietary assays for identifying HCV replication inhibitors. Merck had the right to commercialize any drugs from the
collaboration, and Isis retains the right to use technology developed in the collaboration in its antisense program. During 2003, and 2002, Isis earned revenue of $900,000 and $2.2&nbsp;million,
respectively, from Merck under the terms of this agreement. Isis earned no revenue for the year ended December&nbsp;31, 2004. </FONT></P>

<P><FONT SIZE=2><B><I>Satellite Company Collaborations  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Sarissa,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2005, Isis licensed an anti-cancer antisense drug to Sarissa,&nbsp;Inc., a biotechnology company emerging from the University of
Western Ontario. The drug is an antisense inhibitor of thymidylate synthase, "TS", a well-known drug target that protects cancer cells from the effects of several chemotherapy treatments.
In preclinical studies, antisense inhibition of TS suppressed human tumor cell growth and overcame tumor cell resistance to marketed TS-targeted drugs. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of the agreement, in exchange for the exclusive, worldwide license to the TS antisense drug, Sarissa issued to Isis a $1.0&nbsp;million debt instrument (the "Sarissa
Note"), which will convert into Sarissa's common stock upon its successful completion of a venture capital financing. Isis has not yet determined a value for the Sarissa Note. Under the agreement,
Sarissa agreed to pay Isis milestone
payments totaling up to $5.5&nbsp;million for key clinical and regulatory achievements and royalties on any product sales. Sarissa is solely responsible for preclinical and clinical development of
the drug. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Alnylam Pharmaceuticals, Inc</I></FONT><FONT SIZE=2><B><I>.  </I></B></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2004, Isis entered into a strategic alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of the agreement, Isis
exclusively licensed to Alnylam its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5.0&nbsp;million
technology access fee, participation in fees for Alnylam's partnering programs, as well as future milestone and royalty payments. For each of these drugs, the potential milestone payments total
$3.4&nbsp;million and are payable upon the occurrence of </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-28</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fs1045_1_29"> </A>

<P><FONT SIZE=2>specified
development and regulatory events. Isis will retain rights to a limited number of RNAi therapeutic targets and all rights to single-stranded RNAi therapeutics. In addition, Alnylam and Isis
will share the proceeds of any licenses Alnylam grants under its previously announced Interfe</FONT><FONT SIZE=2><I>Rx</I></FONT><FONT SIZE=2> program that include sublicenses to Isis' patents. Isis
agreed to provide Alnylam with access to its resources for development and commercialization of RNAi therapeutics, including process development, bioanalytic methods, quality control and
manufacturing. Isis also made a $10&nbsp;million equity investment in Alnylam. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
turn, Alnylam nonexclusively licensed Isis its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize
single-stranded RNAi therapeutics and to research double-stranded RNAi compounds. Isis also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of
therapeutic targets on either an exclusive or co-exclusive basis depending on the target. If Isis develops or commercializes an RNAi-based drug using Alnylam's technology, Isis
will pay Alnylam milestones and royalties. For each of these drugs, the potential milestone payments total $3.4&nbsp;million and are payable upon the occurrence of specified development and
regulatory events. As of December&nbsp;31, 2004, Isis did not have an RNAi-based drug in clinical development. As part of the collaboration, each party granted the other party a
nonexclusive cross license to its respective patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for microRNA therapeutics. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September&nbsp;2004, Isis recorded a non-cash loss on investment of $5.0&nbsp;million related to the impairment of its equity investment in Alnylam. The loss on
investment reflected a decrease in the market value of Alnylam's stock in 2004, which Isis believes was primarily a result of financial market conditions related to biotechnology companies. Isis'
balance sheet at December&nbsp;31, 2004 includes a short-term investment at fair market value of approximately $2.0&nbsp;million and a long-term investment at fair market
value of $3.9&nbsp;million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, Isis generated revenue from its relationship with Alnylam totaling $5.5&nbsp;million, or 13%, of total revenue. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Ercole Biotech,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2003, Isis and Ercole initiated a multi-year collaboration to discover antisense drugs that regulate alternative RNA splicing. As part
of the collaboration, the two parties cross-licensed their respective splicing-related intellectual property. As part of this collaboration, Isis granted Ercole a license to its Bcl-x
molecule and certain of its chemistry patents. In addition, Isis took an equity ownership position in Ercole, with the initial funding in the form of convertible debt, which the companies anticipate
will convert into securities that Ercole issues in its next venture capital financing. Isis also has the option to make an additional equity investment in Ercole. Pursuant to the terms of a Note and
Warrant Purchase Agreement, during 2003 and early 2004, Isis made cash payments to Ercole of $500,000 and $250,000, respectively in exchange for a convertible promissory note ("the Note"). Isis
expensed the payments when made. The Note is secured by all of Ercole's assets, including intellectual property and licenses. The Note will convert into securities that Ercole issues in a qualified
financing, as defined by the agreement. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Antisense Therapeutics&nbsp;Ltd.,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, Isis licensed its compound, ATL 1102, formerly Isis 107248, to ATL, a publicly-traded company listed on the Australian Stock Exchange.
Isis and ATL are participating in a five-year </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-29</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>antisense
drug discovery and development collaboration, under which ATL pays Isis research fees and reimbursed Isis for costs related to preclinical work on ATL 1102. ATL has the option to license
additional drugs from Isis. In connection with this collaboration, Isis received 30.0&nbsp;million shares of ATL common stock upon completion of ATL's initial public offering ("IPO"),
representing an initial ownership percentage of approximately 14%, and options to purchase an additional 20.0&nbsp;million shares of ATL common stock, which expire in 2008. Isis valued its initial
ownership at $2.8&nbsp;million, and is recognizing revenue based on this amount over the term of the agreement. For the years ended December&nbsp;31, 2004, 2003 and 2002, Isis recorded revenue of
$1.4&nbsp;million, $811,000 and $3.7&nbsp;million respectively, related to this collaboration. As of December&nbsp;31, 2004, Isis' ownership percentage in ATL, including 10.3&nbsp;million
shares Isis purchased subsequent to shares it acquired in the IPO, was approximately 11%. Isis' balance sheets at December&nbsp;31, 2004 and 2003 include a short-term investment at fair
market value of $3.8&nbsp;million and $3.6&nbsp;million, respectively, related to this equity investment. </FONT></P>

<UL>

<P><FONT SIZE=2><I> OncoGenex Technologies,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to a November&nbsp;2001 drug development collaboration, Isis agreed to co-develop and commercialize the anti-cancer antisense
drug candidate, OGX-011, or ISIS 112989, with OncoGenex, a privately-held Canadian oncology-focused research and development company. Pursuant to the agreement, Isis shares in
the costs of developing OGX-011. In exchange, Isis shares in any revenue generated by OncoGenex for OGX-011. In a September&nbsp;2003 drug development collaboration, Isis
also agreed to license certain technology and collaborate on the initial development of a second anti-cancer antisense drug candidate, OGX-225, a second-generation drug, with
OncoGenex. Under the terms of the collaboration, during 2003 OncoGenex paid Isis an up-front fee and Isis acquired an ownership interest in OncoGenex of less than 10%. In addition,
OncoGenex agreed to provide to Isis milestone payments totaling up to $3.5&nbsp;million for key clinical and regulatory achievements and royalties on product sales. As of December&nbsp;31, 2004,
OncoGenex had not triggered any of these milestone payments related to OGX-225. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
the years ended December&nbsp;31, 2004 and 2003, Isis earned revenue of $669,000 and $750,000, respectively, related to its collaboration with OncoGenex. Isis earned no revenue
from OncoGenex during 2002. Isis' balance sheets at December&nbsp;31, 2004 and 2003 include a long-term investment of $750,000 related to this equity investment, reflecting the value of Isis'
initial investment. While there is no readily determinable market value for these securities, there has been no indication that Isis' investment in OncoGenex has been impaired; accordingly, Isis
believes that the carrying value of this investment is equal to or below its current fair market value. As of December&nbsp;31, 2004, Isis' balance sheet included deferred revenue of
$1.6&nbsp;million with corresponding finished goods inventory of $1.4&nbsp;million on its balance sheet related to an agreement to supply clinical trial material to OncoGenex for which Isis has
continuing obligations. Isis expects to recognize the $1.6&nbsp;million in revenue and related costs of $1.4&nbsp;million during the first quarter of 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January&nbsp;2005, Isis broadened its antisense drug development partnership with OncoGenex to include the development of two additional second-generation antisense
anti-cancer drug candidates. Under the terms of the agreement, OncoGenex is responsible for the preclinical and clinical development of the drug. OncoGenex agreed to pay Isis an upfront
fee, milestone payments for key clinical and regulatory achievements, and royalties on future product sales. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-30</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>
<UL>

<P><FONT SIZE=2><I> Santaris Pharma A/S  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;1998 and September&nbsp;2000, Isis entered into license agreements with Santaris, a privately-held company, formerly Pantheco
A/S, a privately-held company. The agreement was amended in May&nbsp;2003. Under the terms of the amended and restated license agreements, Isis licensed its novel antisense chemistry,
Peptide Nucleic Acid, or PNA, to Santaris on a limited exclusive basis to develop products. The license is restricted to a limited number of molecular targets that are subject to Isis' approval.
Santaris has agreed to pay Isis royalties on any products developed under the license. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of its original license agreements with Pantheco, Isis received shares of Pantheco common stock. In May&nbsp;2003, Pantheco A/S and Cureon A/S merged to form Santaris Pharma
A/S. Prior to the merger, Isis purchased additional shares of Pantheco for $55,000 as a result of antidilution provisions related to Pantheco's stock. After the merger and as of December&nbsp;31,
2004 and 2003, Isis' ownership interest in Santaris was less than 10%. Isis' balance sheets at December&nbsp;31, 2004 and 2003 included a long-term investment of $625,000, respectively,
related to this equity investment, reflecting the value of Isis' initial investment. While there is no readily determinable market value for these securities, there has been no indication that Isis'
investment in Santaris has been impaired; accordingly, Isis believes that the carrying value of this investment is equal to or below its current fair market value. </FONT></P>


<P><FONT SIZE=2><B><I>Antisense Commercialization Collaboration  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Novartis Ophthalmics AG  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;1997, Isis and Novartis Ophthalmics AG, ("Novartis"), formerly CIBA Vision Corporation, entered into an agreement granting Novartis exclusive
worldwide distribution rights for Vitravene. Under the terms of the agreement, Isis is responsible for manufacturing Vitravene and Novartis is responsible for worldwide sales and marketing. Due to the
low incidence of CMV retinitis among patients with AIDS, Novartis AG currently offers Vitravene on a limited basis. During 2002, Isis earned revenue of $2.5&nbsp;million related to a milestone
payment from Novartis, and $293,000 in revenue related to the shipment of Vitravene. Isis earned no revenue related to Vitravene during 2004 and 2003. </FONT></P>

<P><FONT SIZE=2><B><I>Ibis Collaborations  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To develop the TIGER technology and applications, our Ibis division has received contracts from a number of government agencies, including DARPA, the NIAID, part
of the NIH, the CDC and the FBI. Each of these agencies represents a significant source of funding for its TIGER program. To date, the Ibis division has earned $40.1 million in revenue under its
government contracts and grants. Also, it has approval to invoice its government partners an additional $8.6 million under its existing contracts and grants. The Ibis division may receive continued
approval to invoice its government partners under these contracts based upon a variety of factors, including the accomplishment of program objectives and the exercise of additional contract options by
the contracting agencies. In addition, these agencies may terminate these awards. The Ibis division has received contracts and grants from numerous government agencies valued at up to $63.2 million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2004, Isis was granted three government contracts valued at up to $10.0&nbsp;million from the NIAID, the FBI and an undisclosed government agency for the continued
development of our TIGER system. Under the NIAID award, Isis intends to develop an application to use its TIGER technology to assess the safety of investigational vaccines and the components used for
the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-31</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>manufacturing
of biological products by identifying foreign infectious organisms that may be present. Under the FBI award, Isis will continue ongoing development of a microbial agent database. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis
receives funding from DARPA through a subcontract with SAIC, on a multi-year project for the ongoing development of TIGER. This project combines Isis' expertise in
microbial genome sequence analysis and advanced mass spectrometry technology with SAIC's advanced signal processing capabilities. In March&nbsp;2004, Isis entered into a two-year
contract with SAIC that provides for up to $19.5&nbsp;million in funding by DARPA. During 2004 and 2003, revenue from SAIC comprised 18% and 16%, respectively, of Isis' total revenue. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September&nbsp;2003, Isis received a three-year grant for up to $6.0&nbsp;million from the CDC to develop and apply the TIGER technology to the surveillance of human
infectious disease in the United States. Using the grant from the CDC, Isis expects to develop and provide TIGER technology for CDC projects focused on emerging human infectious disease. </FONT></P>


<P><FONT SIZE=2><B><I>Licensing Agreements  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Eyetech Pharmaceuticals,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2001, Isis licensed to Eyetech, a publicly-held company, certain of its patents necessary for Eyetech to develop, make and
commercialize Macugen, a non-antisense compound intended for use in the treatment of ophthalmic diseases. Eyetech paid Isis a $2.0&nbsp;million upfront fee and agreed to pay milestone
and royalty payments in exchange for non-exclusive, worldwide rights to the intellectual property licensed from Isis. In December&nbsp;2002, Eyetech entered into an agreement with Pfizer
to develop and commercialize Macugen. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, Isis earned from Eyetech $4.0&nbsp;million in milestones associated with the filing of an NDA and FDA approval for Macugen for the treatment of wet age-related
macular degeneration. Isis' license with Eyetech also may generate additional milestone payments aggregating up to $2.8&nbsp;million based on achieving specified regulatory milestones with respect
to the use of Macugen for each additional therapeutic indication. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Drug Royalty Corporation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, Isis sold a portion of its royalty rights in Macugen to Drug Royalty USA,&nbsp;Inc. ("DRC) in exchange for aggregate payments of
$24.0&nbsp;million over the next three years. Under the terms of the agreement, Isis and DRC will share the royalty rights on Macugen through 2009. After 2009, Isis retains all royalties for Macugen
under its Eyetech agreement. Under the agreement, through 2009 DRC will receive royalties on the first $500.0&nbsp;million of annual sales of Macugen. Isis and DRC will each receive
50&nbsp;percent of royalties on annual sales between $500.0&nbsp;million and $1.0&nbsp;billion. Isis retains 90% of all royalties on annual sales in excess of $1.0&nbsp;billion and 100% of all
royalties after 2009. Isis has retained all milestones payable to Isis by Eyetech under the companies' original license agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
part of the sale, Isis agreed to pay DRC liquidated damages if any one of a defined set of defaults occurs. The amount of liquidated damages will be calculated such that DRC will
receive a ten per cent per annum return, compounded quarterly on the total of all purchase price payments made by DRC to us through the default date minus the total of any royalties received by DRC
through the default date. In addition, DRC may withhold any installment of the purchase price if immediately prior to such payment, Isis fails to meet a minimum liquidity requirement equal to the then
outstanding </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-32</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>balance
on its loan with Silicon Valley Bank; plus the potential amount of liquidated damages, assuming that DRC has paid the impending purchase price installment; plus its cash burn over the most
recent three months. As collateral for its obligations under the sale agreement, Isis granted DRC a first priority security interest in the patents licensed by Isis to Eyetech under the license
agreement and in the license agreement itself. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Hybridon,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2001, Isis entered into an agreement with Hybridon under which Isis acquired an exclusive license to all of Hybridon's antisense chemistry and
delivery patents and technology. Hybridon retained the right to practice its licensed antisense patent technologies and to sublicense it to collaborators under certain circumstances. In addition,
Hybridon received a non-exclusive license to Isis' suite of RNase H patents. In exchange for the license to Hybridon's antisense patents, Isis paid $15.0&nbsp;million in cash and agreed
to pay Hybridon $19.5&nbsp;million in Isis common stock before May&nbsp;2003. In return for access to Isis' patents, Hybridon agreed to pay Isis $6.0&nbsp;million in Hybridon common stock before
May&nbsp;2004. In September&nbsp;2001 and October&nbsp;2001, Isis issued to Hybridon 357,143 shares of its common stock valued at $5.0&nbsp;million and 500,000 shares of its common stock
valued at $10.0&nbsp;million, respectively. In May&nbsp;2002, Hybridon issued to Isis 1,005,499 shares of its common stock valued at $1.3&nbsp;million and paid Isis $700,000 in cash. In
August&nbsp;2002, Hybridon and Isis cancelled the remaining reciprocal financial obligations related to this agreement. The cancellation of the obligations resulted in a decrease to Isis' carrying
value for the license in the amount of $500,000. Isis' balance sheet at December&nbsp;31, 2004 and 2003 reflected a licensing asset, net of amortization, of $21.3&nbsp;million and
$23.2&nbsp;million, respectively, and a short-term investment at fair market value of $474,000 and $1.1&nbsp;million, respectively, related to this agreement. Early in 2005, Isis liquidated its
short term investment for cash proceeds of $655,000. </FONT></P>

<UL>

<P><FONT SIZE=2><I> Integrated DNA Technologies,&nbsp;Inc.  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;1999, Isis licensed certain antisense patents from Integrated DNA Technologies,&nbsp;Inc. ("IDT"), a leading supplier of antisense inhibitors
for research. These patents are useful in functional genomics and in making certain antisense drugs. In December&nbsp;2001, Isis expanded this license agreement to allow
Isis to exclusively sublicense this intellectual property for functional genomics purposes. Under the license, Isis paid IDT $4.2&nbsp;million through December&nbsp;31, 2004 and expects to pay IDT
an aggregate of $700,000 in 2005. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, in December&nbsp;2001 Isis established a long-term research-scale antisense inhibitor supply agreement with IDT. In this supply agreement IDT agreed to
manufacture research-scale antisense inhibitors and research reagents to Isis' specifications. Isis paid IDT $5.0&nbsp;million toward the future purchase of antisense inhibitors. During the fourth
quarter of 2004, Isis recorded a non-cash charge of $4.2&nbsp;million to write off this unused portion as part of its restructuring activities (</FONT><FONT SIZE=2><I>Note&nbsp;8,
"Restructuring Activities"</I></FONT><FONT SIZE=2>). </FONT></P>

<P><FONT SIZE=2><B><I>Joint Ventures  </I></B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Elan Corporation  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis and Elan formed Orasense, a joint venture to develop technology for the formulation of oral drugs, and HepaSense, a joint venture to develop an antisense
drug to treat patients chronically infected with the Hepatitis C virus, or HCV, during 1999 and 2000, respectively. In late 2002, Elan </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-33</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>concluded
its participation in both of the related collaborations. Pursuant to a June&nbsp;2004 agreement, Isis acquired Elan's minority interest in Orasense and HepaSense. As part of the agreement,
Isis eliminated all future royalties to Elan related to these joint ventures. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2002, Isis earned revenue of $3.0&nbsp;million from HepaSense, and $8.9&nbsp;million from Orasense, which Isis included in its consolidated statements of operations as
research and development revenue from affiliates. During 2002, Isis recorded $6.5&nbsp;million as equity in the loss of HepaSense, and $9.5&nbsp;million as equity in the loss of Orasense. As of
December&nbsp;31, 2004 and 2003, Isis had no receivable or funding obligation related to Orasense or HepaSense. </FONT></P>

<P><FONT SIZE=2><B>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Segment Information and Concentration of Business Risk  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Segment Information  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to 2004, the Company managed itself on a fully integrated basis in one operating segment. As a result of the technological and organizational advances that
Isis' Ibis division made during 2004, combined with the future commercialization plans for its TIGER program and the significant contribution that it made to Isis' 2004 revenue, Isis believes it is
appropriate to discuss the financial results of its Ibis division as a separate operating segment. In addition, based upon the distinct nature of the products and services each segment provides, Isis
determined that it operates in two reportable segments, Drug Discovery and Development, and Ibis. Segment operating loss includes research and development, general and administrative expenses, and
other charges attributable to the segment. Costs excluded from the segments consist of compensation expense (benefit) related to stock options and restructuring activities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Drug Discovery and Development segment generates revenue from collaborations with corporate partners and from licensing proprietary patent rights. Revenue from collaborations with
corporate partners may consist of upfront payments, funding for research and development activities, milestones and royalties. This segment's proprietary technology to discover and characterize novel
antisense inhibitors has enabled its scientists to modify the properties of its antisense drug candidates for optimal use with particular targets and thus, to produce a broad proprietary portfolio of
compounds applicable to many disease targets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Ibis segment generates revenue from grants and contracts from United States government agencies, including DARPA, the CDC, the FBI and the NIAID, a part of the NIH. Within the Ibis
division, the Company has invented a technology that has the potential to revolutionize the identification of infectious diseases. This technology is called TIGER, which is the product of core
technology development and small molecule drug discovery research conducted within the Ibis division during its early years. Prior to the development of TIGER, the Ibis division focused on discovering
novel small molecule antimicrobial drugs. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to 2004, Isis did not allocate R&amp;D support or general and administrative costs to its operating segments. Isis believes that it would be impractical to obtain comparative
information for prior periods, and that such comparisons between any period in 2004 and the comparable periods in prior years for R&amp;D support costs and general and administrative expenses by segment
would be meaningless; therefore, Isis has not presented segment financial information for periods prior to 2004. Isis does not include asset or liability information by reportable segment since Isis
does not currently segregate this information by segment and it is not used for purposes of making decisions about allocating resources to the segments and assessing their performance. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-34</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2><A
NAME="page_fu1045_1_35"> </A> </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is information for net sales and operating income by segment for the year ended December&nbsp;31, 2004. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="96%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1><B>Revenue:<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Drug Discovery and<BR>
Development</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Ibis</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Corporate</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Total</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>21,684</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,933</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>32,617</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Licensing and royalty</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>10,007</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>10,007</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="36%"><FONT SIZE=2>Total segment revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>31,691</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>10,933</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>42,624</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Loss from operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>(82,135</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>(3,297</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(32,421</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(117,853</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><I>Geographic Information  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue by geographic area for the year ended December&nbsp;31, 2004 is as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>US</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>41,124</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Singapore</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>1,500</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="81%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>42,624</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived
assets by geographic area as of December&nbsp;31, 2004 are as follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="67%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="83%"><FONT SIZE=2>US</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>82,515</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="83%"><FONT SIZE=2>Singapore</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>301</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="83%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="83%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>82,816</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="83%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><I>Concentrations of Business Risk  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis does not generate sales from products but has historically funded its operations in part from collaborations with corporate partners and various government
agencies. A relatively small number of partners historically have accounted for a significant percentage of Isis' revenue. Revenue from significant partners as a percentage of total revenue was as
follows: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2004</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2003</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Partner A</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>62</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>57</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Partner B</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Partner C</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Partner D</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>0</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>%</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>11</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During
2004, 2003 and 2002, Isis derived approximately 28%, 20% and 7%, respectively, of its revenue from agencies of the United States Government, including approximately 18%, 16% and
zero, respectively, of revenue from one significant customer. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract
receivables from four significant partners comprised approximately 30%, 20%, 17% and 10% of contract receivables at December&nbsp;31, 2004. Contract receivables from three
significant partners comprised approximately 49%, 17% and 15% of contract receivables at December&nbsp;31, 2003. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-35</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fu1045_1_36"> </A>
<BR>

<P><FONT SIZE=2><B>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restructuring Activities  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fourth quarter of 2004, Isis recorded a $32.4&nbsp;million non-cash charge for restructuring activities resulting from management's
strategic decision to reorganize and refocus the Company's resources to advance its most promising second-generation drugs and to continue its development of antisense technology. As a result, in 2004
Isis recorded write-downs which approximated the carrying value of tangible and intangible assets considered non-essential to the Company's current focus. These charges are summarized
below: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Year Ended<BR>
December 31,<BR>
2004</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(in thousands)<BR> </B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Excess or idle equipment costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>1,161</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Write-down of inventories to estimated net realizable value</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>20,972</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Write-down of prepaid expenses to estimated net realizable value</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>4,149</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>Write-down of patent costs to estimated net realizable value</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>6,145</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="71%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="18%" ALIGN="RIGHT"><FONT SIZE=2>32,427</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the decision to reorganize and refocus the Company's resources, in January&nbsp;2005 Isis commenced several cost containment measures, including a reduction in
workforce of approximately 160 employees, the consolidation of its facilities in the United States, and the closure of the Company's research and development laboratory in Singapore. Isis expects to
complete these restructuring efforts by the end of the second quarter 2005. Pursuant to SFAS No.&nbsp;146, </FONT><FONT SIZE=2><I>"Accounting for Costs Associated with Exit or Disposal
Activities,"</I></FONT><FONT SIZE=2> Isis expects to record the majority of these charges during the first quarter of 2005. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April&nbsp;2003, Isis initiated a restructuring in response to disappointing results from the first Phase III trial of Affinitak. As a result, Isis had a small reduction in its
workforce, which primarily represented positions that Isis used to support the commercialization and manufacture of Affinitak. Consequently, Isis incurred a restructuring charge of approximately
$1.8&nbsp;million during the second quarter of 2003. Isis completed the utilization of the reserve related to this restructuring in the fourth quarter of 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November&nbsp;2002, Isis announced the termination of the GeneTrove database product offering and the resulting reorganization of the GeneTrove program. As a result, Isis had a
small reduction in workforce. The restructuring plan also provided for the write-down of certain intellectual property. As a result of this plan, Isis recognized restructuring related
charges of approximately $1.4&nbsp;million as operating expenses in the fourth quarter of 2002. Isis fully utilized the reserve related to this restructuring in the fourth quarter of 2003. </FONT></P>

<P><FONT SIZE=2><B>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee Postemployment Benefits  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis has an employee 401(k) salary deferral plan, covering all domestic employees. Employees may make contributions by withholding a percentage of their salary up
to the IRS annual limit ($13,000 and $16,000 in 2004 for employees under 50&nbsp;years old and over 50&nbsp;years old, respectively). Isis made approximately $478,000 and $463,000 in matching
contributions for the years ended December&nbsp;31, 2004 and 2003, respectively. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-36</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_fu1045_1_37"> </A>
<BR>

<P><FONT SIZE=2><B>10.&nbsp;&nbsp;&nbsp;Affiliate Supplementary Disclosure  </B></FONT></P>


<P><FONT SIZE=2><I>Orasense  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the significant minority investor rights retained by Elan and its subsidiaries, Isis accounted for its investment in Orasense under the equity method of
accounting through 2002. At inception, Elan granted Orasense a license to its intellectual property for $15.0&nbsp;million. The term of the license was three years and amortization expense related
to this license was $1.3&nbsp;million for the year ended December&nbsp;31, 2002. Through December&nbsp;2002, Orasense incurred research and development expenses, performed by Elan and Isis on
Orasense's behalf, in the course of its product development. In conjunction with its restructuring efforts, Elan concluded its participation in the Orasense collaboration effective December&nbsp;31,
2002. As a result, Isis regained all rights to ISIS 104838, the compound that Elan and Isis were developing within Orasense. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2004, Isis acquired Elan's minority interest in Orasense. Through the agreement, Isis eliminated all future royalties to Elan related to the technology for the formulation
of oral drugs developed within the Orasense collaboration. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
2004, Orasense incurred approximately $811,000 in research and development expenses through the date of Isis' acquisition of Elan's minority interest in Orasense. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table presents summary financial information for Orasense as of and for the year ended December&nbsp;31, 2003 (in thousands, except per share amounts) </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="69%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Balance Sheet:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="76%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Liabilities and Stockholders' Equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Amounts due to affiliates</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Common stock, $1.00 par value; 12,000 authorized, issued and outstanding at December 31, 2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>12</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>50,129</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(50,135</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="76%"><FONT SIZE=2>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Results of Operations:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Research and development expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="76%"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="76%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(4,207</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><I>HepaSense  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the significant minority investor rights retained by Elan and its subsidiaries, Isis accounted for its investment in HepaSense under the equity method of
accounting through 2002. At inception, Elan granted HepaSense a license to its intellectual property for $15.0&nbsp;million. The term of the license was three years and amortization expense related
to this license totaled $5.0&nbsp;million for the year ended </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-37</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=107,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=428754,FOLIO='F-37',FILE='DISK027:[05SAN5.05SAN1045]FU1045A.;12',USER='ALOEW',CD='15-MAR-2005;08:38' -->
<A NAME="page_fu1045_1_38"> </A>
<BR>

<P><FONT SIZE=2>December&nbsp;31,
2002. HepaSense incurred research and development expenses, performed by Elan and Isis on Hepasense's behalf, in the course of its product development. In conjunction with its
restructuring efforts, Elan concluded its participation in the HepaSense collaboration in 2002 and Isis regained all rights to ISIS 14803. As a result of the collaboration termination, there was no
activity during the years ended December&nbsp;31, 2004 and 2003. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2004, Isis acquired Elan's minority interest in HepaSense. Through the agreement, Isis eliminated all future royalties to Elan related to ISIS 14803. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table presents summary financial information for HepaSense as of and for the year ended December&nbsp;31, 2003 (in thousands, except per share amounts): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="68%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2><B>Balance Sheet:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%"><FONT SIZE=2>Total assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=2>Liabilities and Stockholders' Equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Common stock, $1.00 par value; 6,001 shares authorized, issued and outstanding at December 31, 2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Series A Preferred stock, $1.00 par value; 6,000 shares authorized, issued and outstanding at December 31, 2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>26,221</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>(26,229</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD WIDTH="75%"><FONT SIZE=2>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="11%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>F-38</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=108,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="1",CHK=679644,FOLIO='F-38',FILE='DISK027:[05SAN5.05SAN1045]FU1045A.;12',USER='ALOEW',CD='15-MAR-2005;08:38' -->
<A NAME="page_fu1045_1_39"> </A>

<P><FONT SIZE=2><B>11.&nbsp;&nbsp;&nbsp;Quarterly Financial Data (Unaudited)  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the
results of the interim periods. Summarized quarterly data for the years ended December&nbsp;31, 2004, and 2003 are as follows (in thousands, except per share data). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="81%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>First Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Second Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Third Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fourth Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2><B>2004 Quarters</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>12,303</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,843</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,093</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11,385</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Operating expenses (1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>34,638</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>31,183</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>31,473</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>63,183</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Loss from operations (1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(22,335</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(21,340</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(22,380</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(51,798</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Net loss (1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(26,306</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(25,949</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(32,708</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(57,540</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Accretion of dividends on preferred stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(181</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(180</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Net loss applicable to common stock (1)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(26,487</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(26,129</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(32,708</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(57,540</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Basic and diluted net loss per share(3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.47</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.57</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.00</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="81%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="42%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>First Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Second Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Third Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Fourth Quarter</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2><B>2003 Quarters</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13,980</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>15,017</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>11,294</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>9,699</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Operating expenses (2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>32,892</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>34,536</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>30,361</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>31,179</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Loss from operations (2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(18,912</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(19,519</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(19,067</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(21,480</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Net loss (2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(24,321</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(23,097</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(22,203</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(25,375</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Accretion of dividends on preferred stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(171</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(172</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(175</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(176</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Net loss applicable to common stock (2)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(24,492</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(23,269</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(22,378</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(25,551</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="42%"><FONT SIZE=2>Basic and diluted net loss per share(3)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.44</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.42</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.40</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(0.46</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Loss
includes charges related to restructuring activities of $32.4&nbsp;million incurred during quarter ended December&nbsp;31, 2004.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Includes
charges related to restructuring activities of $1.8&nbsp;million incurred during the quarter ended June&nbsp;30, 2003.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Net
loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net loss per share will not necessarily equal the total for the
year. </FONT></DD></DL>

<P><FONT SIZE=2><B>12.&nbsp;&nbsp;&nbsp;Subsequent Events  </B></FONT></P>

<UL>

<P><FONT SIZE=2><I> Legal Matters  </I></FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On or about January&nbsp;27, 2005, Ajinomoto Co.,&nbsp;Inc. ("Ajinomoto") filed a Demand for Arbitration against Isis with the American Arbitration
Association in San Diego, California. The Demand relates to a 1994 license agreement between Ajinomoto and Isis, which purports to license certain intellectual property in exchange for initial
payments, royalties and certain milestone payments relating to the development of products covered by the license. Ajinomoto alleges that several products developed by Isis are covered by the license
and seeks a determination of products covered by the license, along with an accounting of any sums due as a result. Ajinomoto alleges these sums amount to no less than $3.9&nbsp;million. Ajinomoto
also seeks a determination that the license is still in force. Isis strongly believes that it has not developed any products covered by the license, and intends to vigorously defend the claim. A
hearing on this matter has not yet been set. Isis estimates that the potential range of loss on this claim is zero to $2.1&nbsp;million, and believes it is reasonably possible, but not probable,
that it will ultimately pay any amounts to Ajinomoto related to this claim. As such, Isis has not recorded a loss related to this claim as of December&nbsp;31, 2004. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>F-39</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<BR>
<P><br><A NAME="05SAN1045_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_be1045_1">FORWARD-LOOKING STATEMENTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_be1045_2">TRADEMARKS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_de1045_1">PART I</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_de1045_2">Item 1. Business</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_do1045_1">Item 2. Properties.</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_do1045_2">Item 3. Legal Proceedings.</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_do1045_3">Item 4. Submission of Matters to a Vote of Security Holders.</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_do1045_4">PART II</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_do1045_5">Item 5. Market For Registrant's Common Equity and Related Stockholder Matters and Issuer Repurchases of Equity Securities</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_do1045_6">Item 6. Selected Consolidated Financial Data (in thousands, except per share amounts)</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_dq1045_1">Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_du1045_1">Item 7A. Quantitative and Qualitative Disclosures About Market Risk</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du1045_2">Item 8. Financial Statements and Supplementary Data</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du1045_3">Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_dw1045_1">Item 9A. Controls and Procedures</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_dw1045_2">Item 9B. Other Information</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ea1045_1">PART III</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_ea1045_2">Item 10. Directors and Executive Officers of the Registrant</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1045_3">Item 11. Executive Compensation</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1045_4">Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1045_5">Item 13. Certain Relationships and Related Transactions</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ea1045_6">Item 14. Principal Accountant Fees and Services</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_ea1045_7">PART IV</A></FONT><BR>
<UL>
<FONT SIZE=2><A HREF="#toc_ea1045_8">Item 15. Exhibits and Financial Statement Schedules</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ec1045_1">SIGNATURES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ec1045_2">POWER OF ATTORNEY</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ee1045_1">INDEX TO EXHIBITS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fa1045_1">ISIS PHARMACEUTICALS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fb1045_1">REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fc1045_1">ISIS PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fe1045_1">ISIS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share amounts)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fg1045_1">ISIS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 2004, 2003 and 2002 (in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fi1045_1">ISIS PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_fk1045_1">ISIS PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.52
<SEQUENCE>2
<FILENAME>a2153640zex-10_52.htm
<DESCRIPTION>EXHIBIT 10.52
<TEXT>
<HTML>
<HEAD>
</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#05SAN1045_2">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="page_kc1047_1_1"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.52  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kc1047_amendment_no._1"> </A>
<A NAME="toc_kc1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>Amendment No.&nbsp;1    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This AMENDMENT No.&nbsp;1 (the "Amendment") is entered into as of the 21&nbsp;day of December, 2004 ("the Effective Date") by and among EYETECH
PHARMACEUTICALS,&nbsp;INC., a Delaware Corporation having its principal place of business at 3 Times Square, 12<SUP>th</SUP> Floor, New York, NY 10036 ("EYETECH") and ISIS
PHARMACEUTICALS,&nbsp;INC., a Delaware Corporation having its principal place of business at 2292 Faraday Ave., Carlsbad CA ("ISIS") to amend the License Agreement effective as of
December&nbsp;31, 2001 ("the Agreement"), by and among EYETECH and ISIS. Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS,
ISIS wishes to induce Eyetech to agree to provide a Consent of Assignment by agreeing to amend the Agreement to amend the definition of Net Sales and timing of milestone
payments set forth therein. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Now,
therefore in consideration of the foregoing and the covenants and promises contained in this Amendment, the Parties hereby amend the Agreement as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
preamble of Section&nbsp;3.1.2 is hereby amended as follows: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.2&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Milestones.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;EYETECH will pay the following milestones to ISIS within 30&nbsp;days after achieving such
milestones: </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
definition for Net Sales set forth in Exhibit&nbsp;A is hereby replaced with the following definition: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><I>Net Sales</I></FONT><FONT SIZE=2>"&nbsp;&nbsp;&nbsp;&nbsp;means the gross amounts billed or invoiced by Eyetech, its affiliates and sublicensees for EYE001 worldwide, less
the following deductions: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;trade,
quantity and cash discounts allowed, but expressly excluding discounts or allowances offered as part of a package of products that includes EYE001 sold by
Eyetech, its affiliates or sublicensees; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;refunds,
chargebacks and any other allowances which effectively reduce the net selling price; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;actual
product returns, credits and allowances allowed to customers, and actual bad debts; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;rebates
actually paid or credited to any governmental agency (or branch thereof) or to any third party payor, administrator or contractee; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;discounts
mandated by, or granted to meet the requirements of, applicable state, provincial or federal law, wholesaler, including required chargebacks and retroactive
price reductions; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;transportation,
freight, postage charges and other charges, such as insurance, relating thereto, in each case included as a specific line item on an invoice to such
third parties; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;taxes,
excises or other governmental charges upon or measured by the production, sale, transportation, delivery or use of goods, in each case included as a specific line
item on an invoice to such third parties. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any such sales to third parties are made in transactions that are not at arm's length between the buyer and the seller, then the gross amount to be included in the calculation of Net
Sales shall be the amount that would have been invoiced had the transaction been conducted at arm's length. Such amount that would have been invoiced shall be determined, wherever possible, by
reference to the average selling price of EYE001 in arm's-length transactions in the relevant country. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>1</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kc1047_1_2"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
Eyetech, its affiliate or sublicensee sells EYE001 in unfinished form to a third party for resale, then the gross amount to be included in the calculation of Net Sales arising from
such sale shall be the amount invoiced by the third party upon resale, in lieu of the amounts invoiced by Eyetech, its affiliates or sublicensee when selling EYE001 in unfinished form. Otherwise,
where Eyetech, its affiliate or sublicensee sells EYE001 in finished form to a third party that does not require a sublicense under the Eyetech Patent Rights for further resale (each such third party
hereinafter a "</FONT><FONT SIZE=2><I>Distributor</I></FONT><FONT SIZE=2>"), the amount to be included in the calculation of Net Sales shall be the price invoiced from Eyetech or its affiliate or
sublicensee to the third party, not the amount invoiced by the third party upon resale. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If,
in addition to or in lieu of a transfer price paid for quantities of EYE001 supplied, any Distributor provides consideration to Eyetech, its affiliate or sublicensee in connection
with any EYE001 or the Distributor's rights or relationship with Eyetech, its affiliate or sublicensee in relation thereto, then such consideration shall be included in the calculation of Net Sales in
the Quarter in which it becomes due to Eyetech or its affiliate or sublicensee (as applicable). Notwithstanding the foregoing, amounts received by Eyetech, or its affiliates or sublicensees, for the
sale of EYE001 among Eyetech and its affiliates or sublicensees for resale shall not be included in the computation of Net Sales hereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
the exception of clinical trials, including Phase IV trials, and the use of reasonable samples, EyeTech, its affiliates or sublicensees will be treated as having sold EYE001 for an
amount equal to the fair market value of EYE001 if: (a)&nbsp;EYE001 is used by EyeTech, its affiliates or sublicensees without charge or provision of invoice, or (b)&nbsp;EYE001 is provided to a
third party by EyeTech, its affiliates or sublicensees without charge or provision of invoice and used by such third party. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
Sales shall be determined from books and records maintained in accordance with GAAP, consistently applied throughout the organization and across all products of the entity whose
sales of EYE001 are giving rise to Net Sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as specified above, all other terms and provisions of the Agreement shall remain in full force and effect. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Amendment shall be construed and the rights of the parties determined in accordance with the laws of the law of the state of Delaware without giving effect to its
conflict of laws rules. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Amendment may be executed in counterparts, each of which shall constitute an original but both of which shall together constitute one and the same instrument. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>* * * *  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the Effective Date. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>EYETECH PHARMACEUTICALS, INC.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2>ISIS PHARMACEUTICALS, INC.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>GLENN SBLENDORIO</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Name: Glenn Sblendorio<BR>
Title: Chief Financial Officer</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Name: B. Lynne Parshall<BR>
Title: EVP &amp; CFO</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<P><br><A NAME="05SAN1045_2">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_kc1047_1">Amendment No. 1</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.53
<SEQUENCE>3
<FILENAME>a2153640zex-10_53.htm
<DESCRIPTION>EXHIBIT 10.53
<TEXT>
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<FONT SIZE=3 ><A HREF="#05SAN1045_3">QuickLinks</A></FONT>
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<P ALIGN="RIGHT"><FONT SIZE=2>
CONFIDENTIAL TREATMENT REQUESTED<BR>
UNDER 17 C.F.R. &sect;&sect; 200.80(b)4, AND 240.24 </FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.53  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_agreement_for_sale_and_assignment_of_rights"> </A>
<A NAME="toc_ke1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>AGREEMENT FOR SALE<BR>  <BR>    AND<BR>  <BR>    ASSIGNMENT OF RIGHTS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS AGREEMENT (the "</FONT><FONT SIZE=2><B>Agreement</B></FONT><FONT SIZE=2>") is made and entered into as of this 21&nbsp;day of December, 2004 (the
"</FONT><FONT SIZE=2><B>Effective Date</B></FONT><FONT SIZE=2>") by and between </FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.</B></FONT><FONT SIZE=2>, a subsisting corporation under the
laws of the State of Delaware ("</FONT><FONT SIZE=2><B>ISIS</B></FONT><FONT SIZE=2>") and </FONT><FONT SIZE=2><B>DRUG ROYALTY USA,&nbsp;INC.</B></FONT><FONT SIZE=2>, a subsisting corporation under
the laws of the State of Nevada ("</FONT><FONT SIZE=2><B>DRC</B></FONT><FONT SIZE=2>"). </FONT></P>

<P><FONT SIZE=2><B>RECITALS:  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>A.</B></FONT></DT><DD><FONT SIZE=2>Capitalized terms used herein have the meanings set forth in Schedule "A" hereto.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>B.</B></FONT></DT><DD><FONT SIZE=2>ISIS is the exclusive owner of the Licensed Patent Rights and has granted to Eyetech, pursuant to the License Agreement, a
non-exclusive license under the Licensed Patent Rights, including a right of sublicense, to make, have made, use and sell the Product world-wide.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>C.</B></FONT></DT><DD><FONT SIZE=2>ISIS and DRC have entered into a non-binding letter of intent dated [***], 2004 (the
"</FONT><FONT SIZE=2><B>LOI</B></FONT><FONT SIZE=2>"), pursuant to which ISIS has agreed to sell, assign, transfer, set-over and convey to DRC the Assigned Rights in consideration of the
payment by DRC to ISIS of the Purchase Price. DRC and ISIS wish to enter into this Agreement to effect the sale, assignment, transfer, set-over and conveyance to DRC of the Assigned Rights
on the terms and conditions set forth herein. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE</B></FONT><FONT SIZE=2>, in consideration of the recitals and mutual covenants set forth herein, the payment by DRC to ISIS of
[***] US dollars (US$[***]) and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged), the parties agree
as follows: </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_article_1_assignment_and_sale"> </A>
<A NAME="toc_ke1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;1<BR>  ASSIGNMENT AND SALE    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>1.1&nbsp;&nbsp;&nbsp;&nbsp;Sale and Assignment.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Subject to the terms and conditions of this Agreement, ISIS hereby sells, assigns, transfers,
sets-over and conveys to DRC all right, title and interest in and to the Assigned Rights free and clear of any Encumbrance. For greater certainty, DRC shall not purchase or assume any of
ISIS' obligations under the License Agreement in connection with the foregoing, including any responsibility to prosecute and/or maintain the Patents or the Licensed Patent Rights. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An
example as to how royalty payments would be calculated and payable to DRC in connection with the Royalty Interest and to ISIS in connection with the ISIS Royalty Interest is set out
in Schedule&nbsp;"B" hereto. </FONT></P>

<P><FONT SIZE=2><B>1.2&nbsp;&nbsp;&nbsp;&nbsp;Purchase Price.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>In
full consideration of the sale, assignment, transfer, set-over and conveyance of the Assigned Rights, DRC shall pay to ISIS an aggregate purchase price (the
"</FONT><FONT SIZE=2><B>Purchase Price</B></FONT><FONT SIZE=2>") of up to twenty-four million US dollars (US$24,000,000), as follows:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>[***]
million US dollars (US$[***]) due and payable on [***], 2005 (the "</FONT><FONT SIZE=2><B>First Payment
Date</B></FONT><FONT SIZE=2>");
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>[***]
million US dollars (US$[***]) due and payable on [***], 2006 ("</FONT><FONT SIZE=2><B>Second Payment
Date</B></FONT><FONT SIZE=2>"); and </FONT></DD></DL>
</DD></DL>
</UL>
<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>[***]
million US dollars (US$[***]) due and payable on [***], 2007 ("</FONT><FONT SIZE=2><B>Third Payment
Date</B></FONT><FONT SIZE=2>").
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Notwithstanding
any other term of this Agreement, the payment by DRC of each component of the Purchase Price contemplated by Subsection 1.2(a) shall be conditional upon: (i)&nbsp;no
Level II Event of Default having occurred (except to the extent that any such Level II Event of Default also constitutes a Special Event of Default and such Special Event of Default has been waived by
DRC in writing); (ii)&nbsp;no Special Event of Default having occurred and not been waived by DRC in writing; and (iii)&nbsp;DRC having received, not more than [***] days
prior to the date for payment of such component, a certificate of the Executive Vice President of ISIS certifying, after due inquiry, that no Level II Event of Default has occurred and that no Special
Event of Default has occurred. ISIS acknowledges that DRC shall rely on such certificate in paying the applicable component of the Purchase Price. In addition, notwithstanding any other term of this
Agreement, if DRC's obligation to pay any component of the Purchase Price (as it comes due on either the First Payment Date, Second Payment Date or Third Payment Date) occurs after an Eyetech Breach
Date, any such payment obligation will be stayed as long as a Cure Period remains in effect and continues. Once the applicable Cure Period ends and all of the conditions set forth in subparts
(i)&nbsp;through (iii)&nbsp;of this subsection 1.2(b) have been met, such component of the Purchase price will become due and payable.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>In
addition to the certificate contemplated by Subsection 1.2(b), when each component of the Purchase Price becomes due, ISIS shall provide to DRC: (i)&nbsp;a written update of the
representations and warranties set out in Section&nbsp;2.1, including an updated list of the Patents current as of the date of the certificate contemplated by Subsection 1.2(b) or if there has been
no change in the Patents as of such date, written confirmation that there has been no such change, as well as ISIS' performance of and compliance with its covenants under Article&nbsp;3 and
(ii)&nbsp;a written confirmation that no Level I Event of Default on the part of ISIS has occurred, or if such a Level I Event of Default has occurred, a description thereof and the actions ISIS is
taking to remedy same. Without limiting any other rights or remedies of DRC hereunder, including pursuant to Section&nbsp;5.3, Article&nbsp;6 and Section&nbsp;7.2, DRC may not withhold payment
of any component of the Purchase Price based on such updated representations, warranties and covenants unless a Level II Event of Default has occurred and, to the extent that such Level II Event of
Default also constitutes a Special Event of Default, DRC has not waived in writing such Special Event of Default.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>Subject
to Subsections 1.2(b), 5.A.2(b), 5.A.2(c) and 5.3, the Purchase Price is not subject to adjustment and shall be payable when due regardless of the value at any time of the
Royalty Interest. Notwithstanding the foregoing, DRC may, in its sole discretion, pay to ISIS any component(s) of the Purchase Price in advance at any time.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>The
Purchase Price shall be paid by wire transfer of federal funds or other immediately available funds to one or more bank accounts designated in writing by ISIS. If any of the
payment dates under Subsection 1.2(a) is not a business day, the payment shall be made on the next following business day. </FONT></DD></DL>
</UL>
<BR>

<P><FONT SIZE=2><B>1.3&nbsp;&nbsp;&nbsp;&nbsp;Eyetech Consent.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>On or before Closing, ISIS shall obtain from Eyetech, in writing, a consent and agreement (the
"</FONT><FONT SIZE=2><B>Eyetech Consent</B></FONT><FONT SIZE=2>") in form and substance reasonably satisfactory to DRC, providing, among other matters: (i)&nbsp;Eyetech's consent to the sale,
assignment, transfer, set-over and conveyance by ISIS to DRC of the Assigned Rights and acknowledgement that DRC shall have the right to exercise such Assigned Rights directly against
Eyetech; (ii)&nbsp;Eyetech's agreement to pay the Royalties to [***] (without any setoff against any amounts owing by ISIS to Eyetech) in accordance with the terms and
conditions of the License Agreement, as amended in accordance with the terms of this Agreement; </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
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<A NAME="page_ke1047_1_3"> </A>

<P><FONT SIZE=2>(iii)&nbsp;Eyetech's
agreement to provide directly to both DRC and ISIS copies of any royalty statements and other information that Eyetech is obligated to provide under the License Agreement in
connection with the Royalties; (iv)&nbsp;Eyetech's agreement that ISIS may disclose to DRC information provided to ISIS by Eyetech pursuant to or in connection with the License Agreement; and
(v)&nbsp;Eyetech's agreement to permit an independent, certified public accountant appointed by DRC, in ISIS' stead, to examine Eyetech's records and other material documents relating or relevant to
the calculation of the Royalties or to the Net Sales of the Product associated therewith; and (vi)&nbsp;Eyetech's confirmation that DRC shall have the right to assign all right, title and interest
in and to the Assigned Rights and the Eyetech Consent to a [***], at any time, without further notice to or consent from Eyetech. In connection with the foregoing, ISIS shall
use its commercially reasonable efforts to obtain from Eyetech on or before Closing, in writing, in form and substance reasonably satisfactory to DRC, Eyetech's agreement to change the Reporting
Periods under the License Agreement to calendar quarters. </FONT></P>

<P><FONT SIZE=2><B>1.4&nbsp;&nbsp;&nbsp;&nbsp;Entitlement and Payments; No Offsets.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Notwithstanding
(i)&nbsp;any claim, counterclaim or setoff which ISIS may have against DRC or which any third party may have against ISIS, (ii)&nbsp;the sale, assignment,
transfer, set-over and conveyance of the Assigned Rights by ISIS to DRC in accordance with the terms hereof and (iii)&nbsp;Eyetech's consent and agreement to make payments directly to
[***] pursuant to the Eyetech Consent, if ISIS receives any payment which constitutes part of the Royalty Interest, or if DRC receives any payment which constitutes part of the
ISIS Royalty Interest, the receiving party shall (I)&nbsp;hold same in trust for the other party; (II)&nbsp;remit such payment to the other party within two (2)&nbsp;business days of discovery
of same by the receiving party; and (III)&nbsp;remit such amount to the other party without any withholding or deduction therefrom.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>In
the event that, notwithstanding the terms of the Eyetech Consent, Eyetech offsets all or part of the Royalty Interest against any right, payment or claim of Eyetech against ISIS
(whether or not made pursuant to the License Agreement), ISIS shall pay to DRC, within [***] days of Eyetech exercising such offset, an amount equal to (i)&nbsp;the Royalty
Interest payable to DRC if no amount was offset less (ii)&nbsp;the amount of Royalty Interest actually received by DRC as a result of such offset. Provided ISIS makes the payment to DRC contemplated
in the preceding sentence, ISIS shall be entitled to retain any amount subsequently recovered from Eyetech in respect of such offset.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>ISIS
shall not hereinafter enter into any agreement with Eyetech unless such agreement contains an express prohibition against offset by Eyetech of any overpayment to or amount due
from ISIS under such agreement against the Royalty Interest or any part thereof. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_article_2_representations_and_warranties"> </A>
<A NAME="toc_ke1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;2<BR>  REPRESENTATIONS AND WARRANTIES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.1&nbsp;&nbsp;&nbsp;&nbsp;ISIS' Representations and Warranties.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as qualified by the exceptions set forth in Schedule "C" hereto
(the "</FONT><FONT SIZE=2><B>Schedule of Exceptions</B></FONT><FONT SIZE=2>"), ISIS represents and warrants to DRC as follows and acknowledges that DRC is relying on such representations and
warranties in entering into this Agreement: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2><B>Recital.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Recital B is a statement of fact and is true and accurate.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2><B>Organization.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS is a corporation duly incorporated, validly existing and in good standing under the laws of the State
of Delaware.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2><B>Ownership.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS is the exclusive owner of all legal and equitable title to the Patents and the Assigned Rights, in each
case, free and clear of all Encumbrances. The Assigned Rights are, and shall be transferred to DRC, free and clear of any and all Encumbrances of any kind whatsoever. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2><B>Authorization.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS has all necessary power, right and authority to carry on its business as it is presently carried on by
ISIS, to enter into, execute and deliver this Agreement and the ISIS Closing Documents, to sell and assign the Assigned Rights to DRC and to perform all of the obligations to be performed by ISIS
hereunder and under the ISIS Closing Documents. This Agreement has been and, at Closing, each of the ISIS Closing Documents will be, duly executed and delivered by ISIS and constitute ISIS' valid and
binding obligation, enforceable against ISIS in accordance with its terms, subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to
equitable principles.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2><B>No Conflicts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Neither the execution and delivery of this Agreement or the ISIS Closing Documents nor the performance or
consummation of the transactions contemplated hereby or thereby will: (i)&nbsp;conflict with, result in a breach or violation of, constitute a default under or accelerate the performance under the
terms of (A)&nbsp;to the best of ISIS' knowledge, any applicable law, any rule or regulation of any government or any agency of any government, or any judgement, order, writ, decree, permit or
license of any court or any government or any agency of any government to which ISIS may be subject, (B)&nbsp;any Material Agreement, including the Silicon Valley Bank Agreement and the Note
Agreements, or (C)&nbsp;ISIS' certificate of incorporation or by-laws; (ii)&nbsp;result in the creation or imposition of any Encumbrance on the Patents, the License Agreement or the
Assigned Rights, except as contemplated by Section&nbsp;3.6 in favour of DRC; or (iii)&nbsp;relieve either party to the License Agreement of any of its obligations or enable it to terminate or
suspend its obligations thereunder.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(f)</FONT></DT><DD><FONT SIZE=2><B>License Agreement.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The License Agreement is valid, binding and enforceable in accordance with its terms and is in full
force and effect, subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to equitable principles. Neither ISIS nor, to ISIS' knowledge,
Eyetech is in default of any of its respective obligations under the License Agreement. ISIS has not waived any rights or defaults under the License Agreement and to ISIS' knowledge no event has
occurred which, after the giving of notice or the lapse of time or both, would constitute a default or breach by ISIS under the License Agreement or, to ISIS' knowledge, would constitute a default or
breach by Eyetech. A true and correct copy of the License Agreement, including all amendments thereto, is attached as Schedule "D" hereto. ISIS has not received any notice in writing that the License
Agreement has been or will be terminated or that ISIS is in default of its obligations under the License Agreement. ISIS has no intention of terminating the License Agreement and is not aware of any
events, circumstances or grounds upon which the License Agreement may be terminated by either party for breach.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(g)</FONT></DT><DD><FONT SIZE=2><B>Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Schedule "E" hereto sets forth a complete list of all patent applications and registered patents which, to the
best of ISIS' knowledge, comprise the Licensed Patent Rights as of the Effective Date [***]. ISIS is the exclusive owner of the entire right, title, and interest in and to the
Patents, including the exclusive right to sue and recover for past and future infringement thereof in the Field, free and clear of any Encumbrances. All assignments evidencing ISIS' exclusive
ownership of the Patents have been duly and timely filed and recorded with the U.S. Patent and Trademark Office and such other foreign offices where such recordation is required in order to fully
protect ISIS' ownership rights to the Patents, and to ISIS' knowledge no third party has claimed or recorded any such rights with respect to any of the Patents. To ISIS' knowledge, all necessary
registration, maintenance or annuity, and renewal fees in connection with the Patents have been timely made. No government funding or university or college resources or facilities were used in the
development of any of the inventions disclosed in the Patents in a manner that would give such government or university or college any ownership interest in or license to the Patents. There are no
royalties, fees or </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
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<UL>
<UL>

<P><FONT SIZE=2>other
payments payable by ISIS to any third party by reason of the ownership, license (or sublicense) or use of any of the Patents. To the best of ISIS' knowledge, each of the Patents and each claim
therein is valid and enforceable according to its terms. The inventions claimed in the Patents were made by employees of ISIS acting in the course of their employment. The Patents and the inventions
claimed in them have not been dedicated to the public. To the best of ISIS' knowledge, all material prior art to each of the Patents has been disclosed to or considered by the respective patent
offices during prosecution of such Patents. ISIS has not filed any disclaimer or made or permitted any other voluntary reduction in the scope of the Patents. To ISIS' knowledge, no allowable or
allowed subject matter of the Patents is subject to any competing conception claims of allowable or allowed subject matter of any patent applications or patents of any third party and have not been
the subject of any opposition proceedings, nor is ISIS aware of any basis for any such interference or opposition proceedings. ISIS has no knowledge of any infringement of the Patents by any person.
ISIS has not received any demand or claim in writing by any person that any of the Patents are, or may be invalid or that the Product infringes upon or may infringe upon or otherwise interferes with
any patent or other right of any kind of any third party. Other than pursuant to the License Agreement, ISIS has not granted any person the right under the Patents to make, use or sell the Product or
any other product that would infringe the Patents in the Field. ISIS has disclosed to DRC in writing all (i)&nbsp;licenses of all the [***] Patents and (ii)&nbsp;Naked
Manufacturing Licenses, in each case granted by ISIS (other than the License Agreement) and hereby confirms that each such license would constitute a Permitted License pursuant to the terms hereof. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(h)</FONT></DT><DD><FONT SIZE=2><B>Litigation.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>There is no (i)&nbsp;action, suit, claim, proceeding or investigation pending or threatened in writing
against ISIS, at law or in equity, (ii)&nbsp;arbitration proceeding to which ISIS is a party, or (iii)&nbsp;governmental inquiry pending or threatened in writing against ISIS, which, if adversely
determined, would question the validity or enforceability of the Patents, the License Agreement or the Assigned Rights or prevent the consummation of the transactions contemplated by this Agreement or
otherwise adversely affect the Assigned Rights. There is no action or suit by ISIS pending or threatened in writing against others relating to the Patents, the License Agreement, the Assigned Rights
or the Product. None of the Patents are subject to any outstanding decree, order, judgment, or stipulation restricting in any manner the use or licensing thereof by ISIS or, to Isis' knowledge,
Eyetech.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2><B>No Consent.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Other than the Eyetech Consent and the Silicon Valley Bank Consent, no consent, approval, license, order,
authorization, registration, declaration or filing with or of any person is required by ISIS in connection with the execution and delivery by ISIS of this Agreement and the ISIS Closing Documents, the
performance by ISIS of its obligations under this Agreement and the ISIS Closing Documents or the consummation of any of the transactions contemplated hereby or thereby.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(j)</FONT></DT><DD><FONT SIZE=2><B>Other Agreements.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Other than the License Agreement, ISIS has not entered into any contract, agreement, commitment or
undertaking creating an Encumbrance relating to or affecting the Assigned Rights.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(k)</FONT></DT><DD><FONT SIZE=2><B>Disclosure.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Except as qualified by the Schedule of Exceptions, no representation or warranty made by ISIS in this
Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make any such representation or warranty not misleading to a prospective buyer of the
Assigned Rights seeking full information as to the Patents, the Licensed Patent Rights, the License Agreement, the Assigned Rights and the Product.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(l)</FONT></DT><DD><FONT SIZE=2><B>Residency.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>During the five (5)&nbsp;year period preceding the Effective Date, ISIS has maintained its chief executive
office in the State of California. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ke1047_1_6"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(m)</FONT></DT><DD><FONT SIZE=2><B>Good Faith and Purpose.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>As of the Effective Date, ISIS is entering this Agreement with no contemplation of insolvency and
with no intent to hinder, delay or defraud any of ISIS' present or future creditors. The purpose of the transaction set out in this agreement is to enable ISIS to acquire the Purchase Price.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(n)</FONT></DT><DD><FONT SIZE=2><B>Bankruptcy.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No corporate action has been taken or is pending, no other steps (including any steps under Title 11 of the
United States Code, as amended) have been taken and no legal proceedings have been commenced or are, to the knowledge of ISIS, threatened in writing or pending for (A)&nbsp;the
winding-up, liquidation, dissolution, administration or reorganization of ISIS, (B)&nbsp;ISIS to enter into any composition or arrangement with its creditors, or (C)&nbsp;the
appointment of a receiver, administrative receiver, trustee or similar officer in respect of ISIS or any of its property, undertakings or assets.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(o)</FONT></DT><DD><FONT SIZE=2><B>Solvency.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS is solvent and able to pay its debts as they fall due and has not suspended or threatened to suspend making
payments (whether principal or interest) with respect to all or any class of its debts in consequence of this Agreement for the sale, assignment, transfer, set-over and conveyance of the
Assigned Rights or any other obligation or transaction contemplated in this Agreement.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(p)</FONT></DT><DD><FONT SIZE=2><B>Silicon Valley Bank Agreement.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The Silicon Valley Bank Agreement is valid, binding and enforceable in accordance with its
terms and is in full force and effect, subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to equitable principles. Neither ISIS nor, to
ISIS' knowledge, Silicon Valley Bank is in default of any of its respective obligations under the Silicon Valley Bank Agreement. ISIS has not waived any rights or defaults under the Silicon Valley
Bank Agreement and to ISIS' knowledge no event has occurred which, after the giving of notice or the lapse of time or both, would constitute a default or breach by ISIS under the Silicon Valley Bank
Agreement or, to ISIS' knowledge, would constitute a default or breach by Silicon Valley Bank. A true and correct copy of the Silicon Valley Bank Agreement, including all amendments thereto, has been
provided to DRC. ISIS has not received any notice in writing pursuant to the Silicon Valley Bank Agreement that such agreement has been or will be terminated or that ISIS is in default of its
obligations under the Silicon Valley Bank Agreement. ISIS has no intention of terminating the Silicon Valley Bank Agreement and is not aware of any events, circumstances or grounds upon which the
Silicon Valley Bank Agreement may be terminated by either party for breach. The amount of the Loan outstanding as at [***], 2004 is approximately
$[***].
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(q)</FONT></DT><DD><FONT SIZE=2><B>Note Agreements.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each of the Note Agreements is valid, binding and enforceable in accordance with its terms and is in full
force and effect, subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to equitable principles. Neither ISIS nor, to ISIS' knowledge, any
other person is in default of any of its respective obligations under the Note Agreements. ISIS has not waived any rights or defaults under the Note Agreements and to ISIS' knowledge no event has
occurred which, after the giving of notice or the lapse of time or both, would constitute a default or breach by ISIS under the Note Agreements or, to ISIS' knowledge, would constitute a default or
breach by any other person. True and correct copies of the Note Agreements, including all amendments thereto, have been provided to DRC. ISIS has not received any notice in writing pursuant to the
Note Agreements that any such agreements have been or will be terminated or that ISIS is in default of its obligations under any such agreements. ISIS has no intention of terminating the Note
Agreements and is not aware of any events, circumstances or grounds upon which the Note Agreements may be terminated for breach. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ke1047_1_7"> </A>
<UL>
<UL>
</UL>
</UL>

<P><FONT SIZE=2><B>2.2&nbsp;&nbsp;&nbsp;&nbsp;DRC's Representations and Warranties.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC represents and warrants to ISIS as follows and acknowledges that ISIS is relying
on such representations and warranties in entering into this Agreement: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2><B>Organization.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of
Nevada.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2><B>Authorization.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC has all necessary power, right and authority to carry on its business as it is presently carried on by
DRC, to enter into, execute and deliver this Agreement and the DRC Closing Documents, and to perform all of the obligations to be performed by DRC hereunder and thereunder. This Agreement has been
and, at Closing, each of the DRC Closing Documents will be, duly executed and delivered by DRC and constitute DRC's valid and binding obligation, enforceable against DRC in accordance with its terms,
subject to bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and to equitable principles.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2><B>No Conflict.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Neither the execution and delivery of this Agreement or the DRC Closing Documents nor the performance or
consummation of the transactions contemplated hereby or thereby will conflict with, result in a breach or violation of, constitute a default under, or accelerate the performance provided by the terms
of (i)&nbsp;to the best of DRC's knowledge, any applicable law, any rule or regulation of any government or any agency of any government, or any judgment, order, writ, decree, permit or license of
any court or government or any agency of any government to which DRC may be subject; (ii)&nbsp;any contract, agreement, commitment or instrument to which DRC is a party or by which DRC or any of its
assets is bound or committed; or (iii)&nbsp;DRC's constituent charter documents or other governing instruments.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2><B>No Consent.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No consent, approval, license, order or authorization, registration, declaration or filing with or of any
person is required by DRC in connection with the execution and delivery by DRC of this Agreement and the DRC Closing Documents, the performance by it of its obligations under this Agreement and the
DRC Closing Documents or the consummation of any of the transactions contemplated hereby or thereby. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>2.3&nbsp;&nbsp;&nbsp;&nbsp;Knowledge.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Any reference in Sections 2.1 or 2.2 to "ISIS' knowledge", "DRC's knowledge" or any similar expressions shall
mean the knowledge of any executive officer of ISIS or DRC or any attorney advising such party with respect to this Agreement, the Patents or the License Agreement, as applicable. </FONT></P>

<P><FONT SIZE=2><B>2.4&nbsp;&nbsp;&nbsp;&nbsp;Survival of Representations and Warranties.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>All representations and warranties of the parties hereunder shall survive the
execution and delivery of this Agreement and Closing without time limit. Any investigation or other examination that may have been made or may be made at any time by or on behalf of the party to whom
representations and warranties are made shall not limit, diminish or in any way affect the representations and warranties in this Agreement, and each party may rely on the representations and
warranties in this Agreement irrespective of any information obtained by it by any investigation, examination or otherwise unless such party has actual knowledge as at the Effective Date that such
representations or warranties are false or incorrect. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_article_3_covenants"> </A>
<A NAME="toc_ke1047_4"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;3<BR>  COVENANTS    <BR>    </B></FONT></P>


<P><FONT SIZE=2><B>3.1&nbsp;&nbsp;&nbsp;&nbsp;Notification.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>ISIS
shall promptly notify DRC in writing of any Event of Default, Special Event of Default or any default or termination by Eyetech under the License Agreement or the commencement of
any litigation, opposition, request for reexamination or similar proceeding in respect of the </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ke1047_1_8"> </A>
<UL>
<UL>

<P><FONT SIZE=2>Patents,
the License Agreement, the Assigned Rights or the Product and each such notification shall contain full particulars of the event described therein. ISIS shall keep DRC reasonably informed as
to the status of any such default, litigation, opposition, request for reexamination or proceeding. Notwithstanding the foregoing, subject to Sections 3.5 and 7.1 and DRC's rights under the Security
Agreement, ISIS will at all times control such default, litigation, opposition, request for reexamination or proceeding. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Promptly
after receipt by ISIS of any material written notice, certificate, offer, proposal, correspondence or other written communication (each, a
"</FONT><FONT SIZE=2><B>Communication</B></FONT><FONT SIZE=2>") relating directly to the Patents, the License Agreement, the Assigned Rights or the Product, in each case for use within the Field,
ISIS shall inform DRC of the receipt and substance of such Communication and if in writing shall furnish DRC with a copy of such Communication.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>ISIS
shall promptly notify DRC in writing of any Permitted License (i)&nbsp;of the [***] Patents, or (ii)&nbsp;that constitutes a Naked Manufacturing
License, in each case hereinafter granted after the Effective Date by ISIS. For each such notice Isis will include the name of the licensee, the nature of the license, the Patents and/or Licensed
Patent Rights licensed and the field of use.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>ISIS
shall promptly notify DRC in writing of any change in the Patents from the list set forth in Schedule "E" as updated from time to time pursuant to this Subsection 3.1(d) or
Subsection 1.2(c).
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>Following
receipt by ISIS of a notice from DRC that DRC intends to enforce its rights under the Security Agreement (in accordance with the provisions thereof and of this Agreement),
ISIS shall promptly provide DRC a written list of each and every Permitted License under the [***] Patents as at the date of such notice. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>3.2&nbsp;&nbsp;&nbsp;&nbsp;Certain Conduct.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Without the prior written consent of DRC, ISIS shall not: (i)&nbsp;sell, assign, transfer, deliver,
license or otherwise dispose of any of the Patents for use in the Field; (ii)&nbsp;create or permit to exist any Encumbrance (other than the Encumbrance created in favor of DRC under the Security
Agreement) on the Patents, the License Agreement or the Assigned Rights; (iii)&nbsp;respond to any Communication that could adversely affect the exploitation of the Patents or the Product in the
Field; (iv)&nbsp;amend or terminate the License Agreement or fail to perform and fulfill its obligations under the License Agreement in accordance with the terms thereof, except as permitted under
Section&nbsp;9.9 of the License Agreement; (v)&nbsp;consent to any assignment of the License Agreement by Eyetech; or (vi)&nbsp;agree to do any of the foregoing or take any other action that
does or would materially reduce or otherwise materially adversely affect the Patents in the Field, the License Agreement or the Assigned Rights or cause any representation or warranty set forth in
Section&nbsp;2.1 to become untrue as of the date of such action, including (A)&nbsp;granting or permitting any license of the Patents, other than under the License Agreement, for use in the Field,
(B)&nbsp;failing to diligently process, prosecute, and maintain in full force and effect the [***] Patents in each of the countries of the Major Market in which ISIS has an
issued patent or pending patent application or (C)&nbsp;failing to diligently enforce in full force and effect the [***] Patents in the Field in each of the countries of the
Major Market in which ISIS has an issued patent. For purposes of clarification, the granting of a Permitted License will not be deemed a violation of this Section&nbsp;3.2. </FONT></P>

<P><FONT SIZE=2><B>3.3&nbsp;&nbsp;&nbsp;&nbsp;Termination of License Agreement.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>In the event that the License Agreement is terminated by ISIS with the prior written
consent of DRC or by Eyetech, ISIS covenants to use its commercially reasonable efforts to (a)&nbsp;negotiate, execute and deliver (i)&nbsp;a new license agreement for the license of the Licensed
Patent Rights for use in the Field, (ii)&nbsp;if both parties agree, in good faith, that the negotiation, execution and delivery of such a new license agreement is highly unlikely, an assignment or
sale of the Licensed Patent Rights for use in the Field, or (iii)&nbsp;any other arrangement for the exploitation of the Licensed Patent Rights for use in the Field, each on terms that are
reasonably satisfactory to DRC, and (b)&nbsp;obtain all approvals and consents which are necessary or, in DRC's sole </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2>discretion,
desirable in connection therewith, including a written consent of the other party to the New License Agreement substantially in the form of the Eyetech Consent. If ISIS does not complete
such negotiation, execution and delivery and obtain such approvals and consents within [***] months following the termination of the License Agreement, then ISIS shall assist
and cooperate with DRC, and DRC shall be authorized in the name of ISIS for the benefit of DRC, at DRC's sole discretion, cost and expense (including DRC's payment of ISIS' reasonable attorney fees in
connection therewith, if any), to negotiate, execute and deliver a new license agreement for the license of the Licensed Patent Rights for use in the Field on the same or better terms (when taken as a
whole) as the License Agreement. For avoidance of doubt, as between the parties hereto, the Royalty Interest shall be equal to (i)&nbsp;[***]% of all payments, property and
other consideration that is less than or equal to [***] for any calendar years prior to 2010 plus the pro rated dollar amount attributable to any Additional Period,
(ii)&nbsp;[***]% of all payments, property and other consideration that is greater than [***] but less than or equal to [***]
for any calendar years prior to 2010 plus the pro rated dollar amount attributable to any Additional Period and (iii)&nbsp;[***]% of all payments, property and other
consideration that is greater than [***] for any calendar years prior to 2010 plus the pro rated dollar amount attributable to any Additional Period (collectively, the
"</FONT><FONT SIZE=2><B>New Royalty Interest</B></FONT><FONT SIZE=2>") under such new license, assignment or sale, or other arrangement (the "</FONT><FONT SIZE=2><B>New License
Agreement</B></FONT><FONT SIZE=2>"). In such event, ISIS agrees to comply with the provisions of this Agreement in connection with the New License Agreement and references herein to Royalty Interest,
the License Agreement, the Assigned Rights and the ISIS Rights shall be deemed to be references to the New Royalty Payments, the New License Agreement, all of the right, title and interest (but none
of the obligations) of ISIS in and to the New License Agreement, and subject to ISIS' right to retain rights equivalent to the ISIS Rights, respectively, and references to Eyetech shall be deemed to
be references to the other party to the New License Agreement. </FONT></P>

<P><FONT SIZE=2><B>3.4&nbsp;&nbsp;&nbsp;&nbsp;Confidentiality.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>All information furnished by DRC to ISIS or by ISIS to DRC in connection with this Agreement and the
transactions contemplated hereby, as well as the terms, conditions and provisions of this Agreement, shall be kept confidential by ISIS and DRC and shall be used by ISIS and DRC only in connection
with this Agreement and the transactions contemplated hereby, except in connection with the enforcement of rights under this Agreement and except to the extent that such information (i)&nbsp;is
already known by the party to whom the information is disclosed or in the public domain at the time the information is disclosed, (ii)&nbsp;thereafter becomes lawfully obtainable from other sources,
(iii)&nbsp;is required to be disclosed in any document to be filed with any federal, state, provincial, municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or (iv)&nbsp;is required to be disclosed under securities laws or regulations applicable to ISIS, DRC or their respective affiliates, or by court or
administrative order. Notwithstanding the foregoing, ISIS and DRC may disclose such information to their respective affiliates, directors, officers, investors,
bankers, advisors, trustees and representatives (collectively "</FONT><FONT SIZE=2><B>Representatives</B></FONT><FONT SIZE=2>"), provided that such persons shall be informed of the confidential
nature of such information and shall be obligated to keep such information confidential pursuant to the terms of this Section&nbsp;3.4. </FONT></P>

<P><FONT SIZE=2><B>3.5&nbsp;&nbsp;&nbsp;&nbsp;Performance of Obligations.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>ISIS
shall, in a timely manner and at its own expense, diligently, (i)&nbsp;prosecute and maintain in full force and effect each pending [***] Patent
application in each of the countries of the Major Market and, to the extent requested by DRC, the Secondary Market; (ii)&nbsp;maintain and keep in full force and effect any issued
[***] Patents in each of the countries of the Major Market and, to the extent requested by DRC, the Secondary Market in which ISIS has an issued [***]
Patent or pending [***] Patent application. Without limiting the foregoing, ISIS will diligently pursue, in a timely manner, the US Application and the EU Application. DRC will
reimburse ISIS for [***]% of ISIS' external costs of any such prosecution and maintenance in the Secondary Market (to the extent that DRC has requested that ISIS perform such
prosecution and maintenance). </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Without
limiting Subsection 3.5(a) above, ISIS promptly will advise DRC in writing of the action it intends to take to exercise, enforce or defend or of its decision not to exercise,
enforce or defend any of its rights under the Patents (to the extent that they relate to the Field) at least [***] days prior to exercising, enforcing or defending any right of
ISIS under the Patents (or failing to take any such action) to the extent that they relate to the Field and ISIS' obligations under this Agreement and at least [***] days prior
to the Exercise Date.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>ISIS
will have the first right, but not the obligation, to enforce and defend at ISIS' expense the Patents or Licensed Patent Rights. If ISIS decides not to or otherwise fails to
diligently exercise, enforce or defend the Patents (to the extent that they relate to the Field) or perform its obligations under Subsection 3.5(a) above or the License Agreement diligently, in a
timely manner (and in any event, in respect of the prosecution and maintenance or the exercise, enforcement or defense of the Patents or Licensed Patent Rights, no less than
[***] days prior to the Exercise Date; and in respect of the performance of any other obligations of ISIS under the License Agreement, no more than
[***] months after the date on which ISIS is required to perform such obligations) and in compliance with the License Agreement, DRC will be entitled (but shall have no
obligation) to exercise, enforce or defend any such rights or perform any such obligations in the name of ISIS pursuant to the power of attorney granted under Section&nbsp;7.1; </FONT> <FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that
(i)&nbsp;DRC will not admit the invalidity or unenforceability of any Licensed Patent, grant any license to the Licensed
Patents or enter into any settlement agreement without ISIS' prior written consent, such consent not to be unreasonably withheld or unduly delayed and (ii)&nbsp;ISIS will be able to participate in
such enforcement and defense at its own expense and with counsel of its choice provided that DRC controls such enforcement and defense. In either circumstance, ISIS shall cooperate and assist DRC in
its exercise, enforcement or defense of such rights or performance of such obligations including by making available to DRC those employees of ISIS whose assistance, testimony or presence is
reasonably required by DRC and by providing to DRC all files, books, records and other information in its possession or control related to the Patents, the Licensed Patent Rights, the License
Agreement and any other agreements requested by DRC from time to time. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>3.6&nbsp;&nbsp;&nbsp;&nbsp;Grant of Security Interest.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>As general and continuing security for the due payment and performance of all of ISIS'
obligations under this Agreement, the License Agreement and the ISIS Closing Documents, ISIS shall grant to DRC a first-ranking security interest in and to the Patents and the License Agreement (as it
relates to the ISIS Rights but not the Assigned Rights) subject to the terms of a security agreement in form and substance satisfactory to both parties (the "</FONT><FONT SIZE=2><B>Security
Agreement</B></FONT><FONT SIZE=2>"). The Security Agreement shall provide that, among other matters, subject to the terms and conditions hereof and thereof, (a)&nbsp;ISIS may exploit (including
through granting Permitted Licenses) the Patents and the Licensed Patent Rights for any purpose other than in the Field and (b)&nbsp;DRC may only exercise its rights under the Security Agreement to
the extent of its Damages and only as contemplated by part&nbsp;(ii) of Section&nbsp;5.3(b) and Section&nbsp;5.3(c), </FONT><FONT SIZE=2><I>but</I></FONT><FONT SIZE=2> not for breach of any
other provision of this Agreement by ISIS. ISIS shall keep the Patents and the License Agreement free at all times from any Encumbrances, </FONT><FONT SIZE=2><I>except</I></FONT><FONT SIZE=2> the
Encumbrance granted in favour of DRC or others pursuant to the terms and conditions of the Security Agreement. </FONT></P>

<P><FONT SIZE=2><B>3.7&nbsp;&nbsp;&nbsp;&nbsp;No Liability.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC will have no liability to ISIS for any act, omission or failure to act by DRC on behalf of ISIS under
Sections 3.3, 3.5 or 7.1 or for any act, omission or failure to act by DRC or any agent in connection with the Encumbrance granted to DRC under the Security Agreement, including in any enforcement or
realization of such Encumbrance except for any loss or damage suffered by ISIS that results from the willful misconduct or gross negligence of DRC or any such agent. No such act, omission or failure
to act by DRC or its agents shall relieve ISIS of any of its obligations hereunder or under the License Agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

<HR NOSHADE>
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<BR>

<P><FONT SIZE=2><B>3.8&nbsp;&nbsp;&nbsp;&nbsp;Books and Records.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS will treat its sale and assignment to DRC of the Assigned Rights pursuant to Section&nbsp;1.1 as
a sale and assignment on ISIS' books and records. Subject to any re-conveyance of the Assigned Rights under Section&nbsp;5.3 or Subsections 5.A.2(b) or (c), ISIS will disclose in the
footnotes to its audited financial statements filed with the SEC that ISIS has (i)&nbsp;sold and assigned the Assigned Rights to DRC (or its permitted assigns) and (ii)&nbsp;granted DRC (or its
permitted assigns) a security interest pursuant to the Security Agreement as general and continuing security for the due payment and performance of all of ISIS' obligations under this Agreement, the
License Agreement and the ISIS Closing Documents. </FONT></P>


<P><FONT SIZE=2><B>3.9&nbsp;&nbsp;&nbsp;&nbsp;Silicon Valley Bank Loan; Notes.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>ISIS
shall not, without the prior written consent of DRC:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>refinance
the Loan, except to a lender dealing at arm's length with ISIS and on financial terms and conditions that (i)&nbsp;include a covenant by ISIS that is the same as the
financial covenant set out in section&nbsp;6.8 of the Loan Agreement; and (ii)&nbsp;are substantially similar to the terms and conditions of the Silicon Valley Bank Agreement; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>amend
the Silicon Valley Bank Agreement to increase the amount of the Loan or remove or reduce ISIS' positive or negative covenants or financial obligations thereunder; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>pre-pay
the Loan in part or in full (except in connection with refinancing the Loan in accordance with Subsection 3.9(a)(i)&nbsp;above or as permitted under Subsection
3.9(b) below) (each, a "</FONT><FONT SIZE=2><B>Repayment</B></FONT><FONT SIZE=2>"); or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iv)</FONT></DT><DD><FONT SIZE=2>pre-pay
or repay the Notes in full if such pre-payment or repayment of the Notes would constitute a default or an event of default under the Silicon Valley
Bank Agreement or, if applicable, the Liquidity Covenant or the Selected SVB Covenants (as each term is defined below).
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Notwithstanding
the foregoing ISIS may make a Repayment, provided following any such Repayment and until the expiration of the Special Events of Default: (x)&nbsp;ISIS shall have
and maintain, as of the last day of each [***], Liquidity of at least the greater of (I)&nbsp;Cash Burn for such [***] multiplied by
[***] or (II)&nbsp;the then applicable Liquidated Damages Amount multiplied by [***] (determined as if a Special Event of Default has occurred at the
time of such Repayment and adjusted to take into account payments of the Purchase Price by DRC and Royalties received by DRC thereafter) (the "</FONT><FONT SIZE=2><B>Liquidity
Covenant</B></FONT><FONT SIZE=2>"); (y)&nbsp;the covenants of ISIS in favor of Silicon Valley Bank under Sections 7.1 and 7.4 of the Silicon Valley Bank Agreement (the
"</FONT><FONT SIZE=2><B>Selected SVB Covenants</B></FONT><FONT SIZE=2>") shall be deemed to be incorporated herein by reference and form&nbsp;a part of this Agreement with all references therein to
Silicon Valley Bank changed to DRC (and all other applicable changes as the context requires); and (z)&nbsp;the Special Events of Default shall be deemed to include a breach of the Selected SVB
Covenants or of the Liquidity Covenant. "</FONT><FONT SIZE=2><B>Liquidity</B></FONT><FONT SIZE=2>" is unrestricted cash on hand (and cash equivalents). "</FONT><FONT SIZE=2><B>Cash
Burn</B></FONT><FONT SIZE=2>" is the change in Liquidity from that as of the prior [***] end to Liquidity calculated at such [***] end, excluding such
extraordinary items as ISIS may reasonably request and as DRC may approve in its reasonable discretion. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_article_4_closing;_deliveries_on_closing"> </A>
<A NAME="toc_ke1047_5"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;4<BR>  CLOSING; DELIVERIES ON CLOSING    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>4.1&nbsp;&nbsp;&nbsp;&nbsp;Closing.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Subject to satisfaction or waiver of all deliveries set forth below, the closing with respect to the sale,
assignment, transfer, set-over and conveyance of the Assigned Rights (the "</FONT><FONT SIZE=2><B>Closing</B></FONT><FONT SIZE=2>") shall occur on the Effective Date. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>

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<A NAME="page_ke1047_1_12"> </A>
<BR>

<P><FONT SIZE=2><B>4.2&nbsp;&nbsp;&nbsp;&nbsp;Deliveries by ISIS.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS hereby agrees to deliver to DRC on the Effective Date: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>A
Certificate of Good Standing from the Delaware Secretary of State dated not earlier than five (5)&nbsp;days prior to the date of this Agreement.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>A
certificate signed by an authorized signing authority of ISIS certifying that the execution, delivery and performance by ISIS of this Agreement and the ISIS Closing Documents have
been duly and validly authorized by the Board of Directors of ISIS and attaching complete and accurate copies of its Certificate of Incorporation, bylaws and authorizing resolutions relating to this
Agreement.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>An
opinion of counsel to ISIS, in a form reasonably acceptable to DRC, that: (i)&nbsp;the execution and delivery of this Agreement and the ISIS Closing Documents and the performance
of ISIS' obligations under this Agreement and the ISIS Closing Documents have been duly authorized; (ii)&nbsp;ISIS is validly existing as a corporation in good standing under the laws of the State
of Delaware and has the power and authority to execute and deliver this Agreement and the ISIS Closing Documents and perform its obligations hereunder and thereunder, that the execution, delivery and
performance of ISIS' obligations by ISIS will not contravene its charter documents, any Material Agreement, any orders of any court or tribunal or any applicable law; and (iii)&nbsp;this Agreement
and the ISIS Closing Documents are valid and binding on and enforceable against ISIS in accordance with their terms, subject to the usual qualifications and the creation and perfection of DRC's
Encumbrance in the Patents, the Licensed Patent Rights and the License Agreement (as it relates to the ISIS Rights but not as it relates to the Assigned Rights).
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>The
Eyetech Consent, the Security Agreement and [***] (collectively, the "</FONT><FONT SIZE=2><B>ISIS Closing Documents</B></FONT><FONT SIZE=2>"), a consent
by Silicon Valley Bank, in writing, in form and substance reasonably satisfactory to DRC: (i)&nbsp;consenting to the execution, delivery and performance of this Agreement and the Security Agreement;
(ii)&nbsp;releasing the negative pledge covering the Patents and the Licensed Patent Rights; (iii)&nbsp;releasing Silicon Valley Bank's security interest in the Patents, the Licensed Patent Rights
and the License Agreement; (iv)&nbsp;waiving the negative covenant in respect of [***] with respect to ISIS' obligations to DRC hereunder; (iv)&nbsp;confirming that the
Loan is in good standing and that the execution, delivery and performance by ISIS of this Agreement and the ISIS Closing Documents will not constitute an Event of Default and (v)&nbsp;agreeing to
notify DRC of the occurrence of any event of default under the Silicon Valley Bank Agreement in a reasonably timely manner (the "</FONT><FONT SIZE=2><B>Silicon Valley Bank
Consent</B></FONT><FONT SIZE=2>").
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>Such
other certificates, documents and financing statements as DRC may reasonably request, including a UCC financing statement satisfactory to DRC (i)&nbsp;to create, evidence and
perfect the first ranking Encumbrance in the Patents, the Licensed Patent Rights and the License Agreement (as it relates to the ISIS Rights but not as it relates to the Assigned Rights) created under
the Security Agreement and (ii)&nbsp;pursuant to the provisions of Section&nbsp;7.7 hereof. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>4.3&nbsp;&nbsp;&nbsp;&nbsp;Deliveries by DRC.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC hereby agrees to deliver to ISIS on the Effective Date: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>a
Good Standing Certificate from the Nevada Secretary of State;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>the
Security Agreement, the Eyetech Consent and [***] (collectively, the "</FONT><FONT SIZE=2><B>DRC Closing Documents</B></FONT><FONT SIZE=2>");
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>a
check in the amount of [***] US dollars ($[***]); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>a
certificate signed by an authorized signing authority of DRC certifying that the execution, delivery and performance by DRC of this Agreement and the DRC Closing Documents have </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ke1047_1_13"> </A>
<UL>
<UL>

<P><FONT SIZE=2>been
duly and validly authorized by the Board of Directors of DRC and attaching complete and accurate copies of its Articles of Incorporation, bylaws and authorizing resolutions relating to this
Agreement. </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1047_article_5.a_special_events_of_default"> </A>
<A NAME="toc_ke1047_6"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 5.A<BR>  SPECIAL EVENTS OF DEFAULT    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>5.A.1&nbsp;&nbsp;&nbsp;&nbsp;Special Events of Default.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Following the occurrence of any Special Event of Default, DRC shall have a period of
[***] days (such [***] days commencing on the earlier of (i)&nbsp;the date of receipt by DRC of written notification from ISIS of the occurrence of
such Special Event of Default and (ii)&nbsp;the date DRC becomes actually aware of the occurrence of a Special Event of Default and has notified ISIS of same in writing) to notify ISIS in writing
that either: (a)&nbsp;DRC waives such Special Event of Default, such that the parties' respective rights and obligations hereunder shall continue; or (b)&nbsp;DRC elects to exercise DRC's remedies
under Subsection 5.A.2 below (collectively, the "</FONT><FONT SIZE=2><B>Special Event of Default Remedies</B></FONT><FONT SIZE=2>"). </FONT></P>

<P><FONT SIZE=2><B>5.A.2&nbsp;&nbsp;&nbsp;&nbsp;Special Event of Default Remedies.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If DRC elects to exercise the Special Event of Default Remedies or fails to waive in
writing the Special Event of Default before the expiry of the [***] day period in Section&nbsp;5.A.1, then: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2><I>No</I></FONT><FONT SIZE=2> [***] </FONT><FONT SIZE=2><I>or</I></FONT><FONT SIZE=2>
[***]</FONT><FONT SIZE=2><I>:</I></FONT><FONT SIZE=2> if neither the [***] nor the [***], ISIS shall be required to pay to DRC,
as liquidated damages, an amount equal to: (i)&nbsp;the total of all Purchase Price payments made by DRC to ISIS up to the date of the Special Event of Default (the "</FONT><FONT SIZE=2><B>Default
Date</B></FONT><FONT SIZE=2>"; such amount being, the "</FONT><FONT SIZE=2><B>Aggregate Payments</B></FONT><FONT SIZE=2>"); less (ii)&nbsp;the total of any Royalties received by DRC as of such
Default Date (the "</FONT><FONT SIZE=2><B>Aggregate Receipts</B></FONT><FONT SIZE=2>"); plus (iii)&nbsp;the amount required in order for DRC to have received an internal rate of return, as of the
Default Date, of [***] per cent ([***]%) per annum, compounded quarterly, on the Aggregate Payments less the Aggregate Receipts taking into account the
dates on which any such amounts were actually paid or received (collectively, the "</FONT><FONT SIZE=2><B>Liquidated Damages Amount</B></FONT><FONT SIZE=2>"). Upon receipt by DRC of the Liquidated
Damages Amount: (i)&nbsp;DRC shall re-convey to ISIS all of DRC's right, title and interest in and to the Assigned Rights; (ii)&nbsp;DRC shall direct Eyetech to pay all future
Royalties for Net Sales of the Product directly to ISIS; (iii)&nbsp;this Agreement shall terminate; and (iv)&nbsp;DRC shall release its security interest under the Security Agreement. In addition,
if the Default Date occurs before DRC pays any component of the Purchase Price, DRC will, subject to DRC's right (notwithstanding any other provision hereof) to retain any or all of such amounts to
off-set any Damages, repay to ISIS any Royalty Interest received by DRC under this Agreement. For greater certainty, DRC shall have no obligation to pay any components of the Purchase
Price otherwise due and payable on or after the Default Date;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2><I>No</I></FONT><FONT SIZE=2> [***]</FONT><FONT SIZE=2><I>:</I></FONT><FONT SIZE=2> if the [***] but the
[***], ISIS shall be required to pay to DRC, as liquidated damages, an amount equal to the Liquidated Damages Amount reduced by the US Percentage. Upon receipt by DRC of such
amount: (i)&nbsp;the amount of the Purchase Price outstanding as of the Default Date, if any, shall be reduced by the US Percentage; and (ii)&nbsp;DRC shall re-convey to ISIS all of
DRC's right, title and interest in and to the Assigned Rights to the extent that the Assigned Rights relate to Net Sales of the Product in the EU; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2><I>No</I></FONT><FONT SIZE=2> [***]</FONT><FONT SIZE=2><I>:</I></FONT><FONT SIZE=2> if the [***] but the
[***], ISIS shall be required to pay to DRC, as liquidated damages, an amount equal to the Liquidated Damages Amount reduced by the EU Percentage. Upon receipt by DRC of such
amount: (i)&nbsp;the amount of the Purchase Price outstanding as of the Default Date, if any, shall be reduced by the EU Percentage; and (ii)&nbsp;DRC shall re-convey to ISIS all of
DRC's right, title and interest in and to the Assigned Rights to the extent that the Assigned Rights relate to Net Sales of the Product in the United States. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ke1047_1_14"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>The
parties acknowledge and agree that the Special Event of Default Remedies constitute a genuine and reasonable good faith pre-estimate of the damages that will be
suffered by DRC upon the occurrence of any Special Event of Default and shall not be characterized as or deemed to be a penalty. Notwithstanding anything to the contrary contained herein, DRC shall
not enforce its security interest in the Collateral (as such term is defined in the Security Agreement) if DRC has received payment of the Liquidated Damages Amount, as same may be reduced pursuant to
Subsections 5.A.2(b) or (c)&nbsp;hereof, as applicable. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>5.A.3&nbsp;&nbsp;&nbsp;&nbsp;Payment Date and Interest on Overdue Amounts.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>All amounts payable by ISIS under Section&nbsp;5.A.2 shall be due within
[***] days following written notice by DRC of its election to exercise the Special Event of Default Remedies or upon the expiry of the [***] day period
in Section&nbsp;5.A.1 if no written notice of waiver is provided by DRC. Overdue amounts shall bear interest at the rate of [***] per annum, compounded quarterly, until paid
in full. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_kg1047_1_15"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kg1047_article_5_term_and_termination"> </A>
<A NAME="toc_kg1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;5<BR>  TERM AND TERMINATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>5.1&nbsp;&nbsp;&nbsp;&nbsp;Term.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Subject to this Article&nbsp;5 and Article&nbsp;5.A, the term of this Agreement shall commence as of the
Effective Date and shall continue until the date of receipt by DRC of the Royalties for the calendar quarter ending on December&nbsp;31, 2009; provided that, notwithstanding the term of this
Agreement, DRC shall be entitled to receive any payments relating to the Royalty Interest accruing on or prior to the termination or expiry of this Agreement. </FONT></P>

<P><FONT SIZE=2><B>5.2&nbsp;&nbsp;&nbsp;&nbsp;[Intentionally Deleted]  </B></FONT></P>

<P><FONT SIZE=2><B>5.3&nbsp;&nbsp;&nbsp;&nbsp;Termination on Event of Default</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>If
DRC commits a Level I Event of Default, then, on the expiry of the applicable remedy period (if any), ISIS, in addition to any other rights and remedies available hereunder, under
applicable law or in equity, may elect to terminate this Agreement by written notice to DRC, whereupon this Agreement shall terminate and DRC shall re-convey to ISIS all right, title and
interest in and to the Assigned Rights. If ISIS terminates this Agreement under this Subsection 5.3(a) before DRC pays any component of the Purchase Price (by way of Damages or otherwise), DRC shall
repay to ISIS any Royalty Interest received by DRC under this Agreement, subject to DRC's right (notwithstanding any other provision hereof) to retain any or all of such amounts to off-set
any Damages.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>If
ISIS commits a Level I Event of Default, then, on the expiry of the applicable remedy period (if any), DRC may, subject to Section&nbsp;5.4, </FONT> <FONT SIZE=2><I>either</I></FONT><FONT SIZE=2> (i)&nbsp;elect to terminate this Agreement by written
notice to ISIS, whereupon this Agreement shall terminate and DRC shall
re-convey to ISIS all right, title and interest in and to the Assigned Rights or (ii)&nbsp;pursue its other rights and remedies available hereunder, under applicable law or in equity,
including enforcing its security interest in the Collateral to the extent of its Damages (under and as such terms are defined in the Security Agreement).
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>If
ISIS commits a Level II Event of Default, DRC may, subject to Section&nbsp;5.4, in addition to any other rights and remedies available hereunder, under applicable law or in
equity, elect to terminate this Agreement by notice in writing given to ISIS (the "</FONT><FONT SIZE=2><B>Termination Event</B></FONT><FONT SIZE=2>"), whereupon this Agreement shall terminate; </FONT> <FONT SIZE=2><I>provided</I></FONT><FONT SIZE=2>
that Section&nbsp;7.7 and any provision hereof required to give effect to Section&nbsp;7.7 shall survive such termination. If DRC
terminates this Agreement pursuant to this Subsection 5.3(c) then (i)&nbsp;DRC shall thereafter have no further obligation to pay any outstanding component of the Purchase Price; (ii)&nbsp;DRC
may, subject to Section&nbsp;5.4 and provided the trigger is not item C set forth in the definition of the Level II Events of Default, in addition to any other rights and remedies available
hereunder, under applicable law or in equity, enforce its security interest in the Collateral (as such term is defined in the Security Agreement) to the extent of its Damages; and (iii)&nbsp;DRC
shall re-convey to ISIS the Assigned Rights, </FONT><FONT SIZE=2><I>except</I></FONT><FONT SIZE=2> that DRC shall retain a portion of the Assigned Rights calculated as follows:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>If
the Termination Event occurs before DRC exercises any Special Event of Default Remedies, then the portion of the Assigned Rights retained by DRC shall equal: (I)&nbsp;the total
amount of the Purchase Price paid to ISIS hereunder plus any amount paid by DRC as Damages as a result of its failure to pay all or part of the Purchase Price; divided by
(II)&nbsp;twenty-four million (24 000 000);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>If
the Termination Event occurs after DRC exercises any Special Event of Default Remedies under Section&nbsp;5.A.2(b), then the portion of the Assigned Rights retained by DRC shall
equal: (I)&nbsp;the total amount of the Purchase Price paid to ISIS hereunder </FONT></DD></DL>
</DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
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<A NAME="page_kg1047_1_16"> </A>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>(provided
a Liquidated Damages Amount was not paid), plus any amount paid by DRC as Damages as a result of its failure to pay all or part of the Purchase Price; divided by
(II)&nbsp;twenty-four million (24 000 000) as reduced by the US Percentage (an example of this situation is set out in the attached Schedule&nbsp;F hereto); and </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>If
the Termination Event occurs after DRC exercises any Special Event of Default Remedies under Section&nbsp;5.A.2(c), then the portion of the Assigned Rights retained by DRC
shall equal: (I)&nbsp;the total amount of the Purchase Price paid to ISIS hereunder (provided a Liquidated Damages Amount was not paid), plus any amount paid by DRC as Damages as a result of its
failure to pay all or part of the Purchase Price; divided by (II)&nbsp;twenty-four million (24 000 000) as reduced by the EU Percentage (an example of this situation is set out in the
attached Schedule&nbsp;F hereto).
<BR><BR></FONT></DD></DL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>Notwithstanding
Subsections 5.3(a), (b)&nbsp;and (c), this Agreement may not be terminated by either party (the "</FONT><FONT SIZE=2><B>Terminating Party</B></FONT><FONT SIZE=2>"),
and the parties' respective rights and obligations hereunder shall be preserved, until the final resolution of any dispute as to the right of the Terminating Party to terminate this Agreement. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>5.4&nbsp;&nbsp;&nbsp;&nbsp;Scope of DRC Remedies.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>DRC acknowledges and agrees that if an event constitutes both an Event of Default and a Special
Event of Default, DRC may exercise its remedies either under Section&nbsp;5.3 or Article&nbsp;5.A but it may not exercise its remedies under both Section&nbsp;5.3 and Article&nbsp;5.A. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kg1047_article_6_mutual_indemnity"> </A>
<A NAME="toc_kg1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;6<BR>  MUTUAL INDEMNITY    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>6.1&nbsp;&nbsp;&nbsp;&nbsp;Mutual Indemnification.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>ISIS hereby indemnifies and holds DRC harmless from any Damages suffered or incurred by DRC to the
extent resulting from (i)&nbsp;any material breach of a representation or warranty of ISIS contained herein or in any certificate or update delivered pursuant to Subsections 1.2(b) or (c), or
(ii)&nbsp;the material breach by ISIS of any covenant contained in this Agreement or any ISIS Closing Documents, or (iii)&nbsp;any Encumbrance of the Assigned Rights or any claim with respect to
the Patents, the Licensed Patent Rights or the Product. DRC hereby indemnifies and holds ISIS harmless from any Damages suffered or incurred by ISIS to the extent resulting from (i)&nbsp;any
material breach of a representation or warranty of DRC contained herein, or (ii)&nbsp;the material breach by DRC of any covenant contained in this Agreement or any DRC Closing Documents. For greater
certainty, neither party shall indemnify the other for any Damages related to any action or inaction on the part of Eyetech. </FONT></P>

<P><FONT SIZE=2><B>6.2&nbsp;&nbsp;&nbsp;&nbsp;Third Party Claims Procedure.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The indemnified party shall give notice (the "</FONT><FONT SIZE=2><B>Indemnity
Notice</B></FONT><FONT SIZE=2>") to the indemnifying party specifying the particulars of any third party claim within [***] days after it receives notification of the claim; </FONT> <FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that
failure to give such notice within such time period shall not prejudice the rights of the indemnified party except to the extent
that the failure to give such notice materially adversely affects the ability of the indemnifying party to defend the claim or to cure the breach of the representation, warranty, covenant or
obligation giving rise to the claim. Subject to the terms of this Section&nbsp;6.2, the indemnifying party shall have sole control over the defense and settlement of such claim. The indemnifying
party may not settle or compromise the claim without the prior written consent of the indemnified party unless such settlement or compromise (i)&nbsp;involves no payment (whether by cash, securities
or other instrument), assignment, granting of a license or admission of fault or wrongdoing by the indemnified party and (ii)&nbsp;the indemnified party receives a comprehensive general release of
all claims from the applicable third parties. The indemnified party shall provide to the indemnifying party, in confidence, all files, books, records and other information in its possession or control
which may be relevant to the defense of such claim. The indemnified party shall co-operate in all reasonable respects in the defense of such claim but at the expense of the indemnifying
party. If the indemnifying party fails to diligently defend such claim throughout the period </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2>that
such claim exists, its right to defend the claim shall terminate and the indemnified party may assume the defense of such claim at the sole expense of the indemnifying party. In such event, the
indemnified party may compromise or settle such claim, without the consent of the indemnifying party. </FONT></P>

<P><FONT SIZE=2><B>6.3&nbsp;&nbsp;&nbsp;&nbsp;Limitation on Indemnity.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Neither party may make a claim for indemnity pursuant to Section&nbsp;6.1 hereof unless and
until the aggregate dollar amount of all such party's Damages exceeds $[***]. Furthermore, notwithstanding Section&nbsp;6.1 of this Agreement: (a)&nbsp;ISIS' obligation to
indemnify DRC pursuant to the terms of this Agreement will not exceed the product of (i)&nbsp;[***] multiplied by (ii)&nbsp;the total accrued payments received by ISIS
pursuant to Section&nbsp;1.2 at the time of such indemnification; and (b)&nbsp;DRC's obligation to indemnify ISIS pursuant to the terms of this Agreement will not exceed the product of
(i)&nbsp;[***] multiplied by (ii)&nbsp;the total amounts paid (or if not paid, due and payable) by DRC pursuant to Section&nbsp;1.2 at the time of such indemnification. </FONT></P>

<P><FONT SIZE=2><B>6.4&nbsp;&nbsp;&nbsp;&nbsp;No Limitation on Special Event of Default Remedies.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Notwithstanding the foregoing, this Article&nbsp;6 shall not apply
to or limit any Special Event of Default Remedies. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kg1047_article_7_miscellaneous"> </A>
<A NAME="toc_kg1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE&nbsp;7<BR>  MISCELLANEOUS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>7.1&nbsp;&nbsp;&nbsp;&nbsp;Additional Documents and Acts; Powers of Attorney.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>After
the Closing, each of the parties hereto shall execute and deliver such additional documents, certificates and instruments, and perform such additional acts, as may be reasonably
requested and necessary or appropriate to carry out all of the provisions of this Agreement and to consummate all of the transactions contemplated by this Agreement.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>ISIS
hereby appoints DRC as its attorney-in-fact with full authority in the place and stead of ISIS and in the name of ISIS, or otherwise from time to time in
DRC's discretion, to take any action and to execute any instrument consistent with the terms of this Agreement which DRC deems necessary or advisable for the purpose of exercising any rights granted
to DRC pursuant to Section&nbsp;3.3 and 3.5 hereof in the event that ISIS fails to complete its obligations or exercise its rights under such Sections within the applicable time periods set out
therein. The foregoing grant of authority is a power of attorney, coupled with an interest, and such appointment shall be irrevocable for the term hereof. ISIS hereby ratifies all that such attorney
shall lawfully do or cause to be done by virtue hereof.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>DRC
hereby appoints ISIS as its attorney-in-fact with full authority in the place and stead of DRC and in the name of DRC, or otherwise from time to time in
ISIS' discretion, to take any action and to execute any instrument consistent with the terms of this Agreement which ISIS deems necessary or advisable for the purpose of exercising any rights granted
to ISIS pursuant to Section&nbsp;5A.2 and 5.3 hereof in the event that DRC fails to complete its obligation to re-convey the applicable portion of the Assigned Rights (as determined
under such Sections) within the applicable time periods set out therein. The foregoing grant of authority is a power of attorney, coupled with an interest, and such appointment will be irrevocable for
the term hereof. DRC hereby ratifies all that such attorney will lawfully do or cause to be done by virtue hereof. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>7.2&nbsp;&nbsp;&nbsp;&nbsp;Specific Performance.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each of the parties hereto acknowledges that the other party may have no adequate remedy at law if
it fails to perform any of its obligations under this Agreement. In such event, each of the parties agrees that the other party shall have the right, in addition to any other rights it may have
(whether at law or in equity), to pursue equitable remedies such as injunction and specific performance of this Agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<BR>

<P><FONT SIZE=2><B>7.3&nbsp;&nbsp;&nbsp;&nbsp;Notices.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>All notices, consents, waivers and other communications hereunder shall be in writing and shall be delivered in
person, sent by overnight courier, facsimile transmission or posted by registered or certified mail, return receipt requested, with postage prepaid, addressed as follows: </FONT></P>

<UL>
<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>if
to DRC: </FONT></DD></DL>
</UL>
</UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>Drug
Royalty USA,&nbsp;Inc.<BR>
101 Convention Center Drive<BR>
Suite 850<BR>
P.O.&nbsp;Box 50401<BR>
Las Vegas, Nevada 89109<BR>
U.S.A. </FONT></P>

<P><FONT SIZE=2>Attention:&nbsp;&nbsp;&nbsp;&nbsp;Behzad
Khosrowshahi<BR>
Fax No.&nbsp;&nbsp;&nbsp;&nbsp;(702)&nbsp;598-3651 </FONT></P>

</UL>

<P><FONT SIZE=2>with
a copy to: </FONT></P>

<UL>

<P><FONT SIZE=2>Drug
Royalty Corporation&nbsp;Inc.<BR>
Suite 3102 Royal Bank Plaza<BR>
Toronto, Ontario<BR>
M5J&nbsp;2J3 </FONT></P>

<P><FONT SIZE=2>Attention:&nbsp;&nbsp;&nbsp;&nbsp;Behzad
Khosrowshahi<BR>
Fax No.&nbsp;&nbsp;&nbsp;&nbsp;(416)&nbsp;863-5161 </FONT></P>

</UL>

<P><FONT SIZE=2>and
to: </FONT></P>

<UL>

<P><FONT SIZE=2>Fasken
Martineau DuMoulin LLP<BR>
Toronto Dominion Bank Tower<BR>
P.O.&nbsp;Box 20, Toronto-Dominion Centre<BR>
Toronto, Ontario<BR>
M5K&nbsp;1N6 </FONT></P>

<P><FONT SIZE=2>Attention:&nbsp;&nbsp;&nbsp;&nbsp;Scott
Conover<BR>
Fax No.&nbsp;&nbsp;&nbsp;&nbsp;(416)&nbsp;364-7813 </FONT></P>

</UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>if
to ISIS: </FONT></DD></DL>
</UL>
</UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>ISIS
Pharmaceuticals,&nbsp;Inc.<BR>
2292 Faraday Avenue<BR>
Carlsbad, California 92008 </FONT></P>

<P><FONT SIZE=2>Attention:&nbsp;&nbsp;&nbsp;&nbsp;B.
Lynne Parshall<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive Vice President, CFO and Director<BR>
Fax No.&nbsp;&nbsp;&nbsp;&nbsp;(760)&nbsp;603-4652 </FONT></P>

</UL>

<P><FONT SIZE=2>with
a copy to: </FONT></P>

<UL>

<P><FONT SIZE=2>General
Counsel<BR></FONT></P>

<P><FONT SIZE=2>Fax
No.&nbsp;&nbsp;&nbsp;&nbsp;(760)&nbsp;268-4922 </FONT></P>

</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>or
to such other address or addresses as DRC or ISIS may from time to time designate by notice as provided herein. Any such notice shall be deemed given when actually received when so delivered
personally or by overnight courier or if mailed, other than during a period of general discontinuance or disruption of postal service due to strike, lockout or otherwise, on the fifth
(5<SUP>th</SUP>) day after its postmarked date thereof or if sent by facsimile transmission on the date sent if such day is a business </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2>day
or the next following business day if such day is not a business day. For the purposes of this Agreement, "</FONT><FONT SIZE=2><B>business day</B></FONT><FONT SIZE=2>" means any day other than
Saturday, Sunday or a statutory or civic holiday observed in Toronto, Ontario or Carlsbad, California. </FONT></P>

<P><FONT SIZE=2><B>7.4&nbsp;&nbsp;&nbsp;&nbsp;Successors and Assigns.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>This Agreement shall inure to the benefit of and be binding upon the successors and permitted
assigns of each of ISIS and DRC. This Agreement may not be assigned in whole or in part by either party without the prior written consent of the other party; </FONT><FONT SIZE=2><I>provided,
however</I></FONT><FONT SIZE=2> that (i)&nbsp;DRC may assign this Agreement in whole or in part by way of [***] and/or to [***] and/or as part of a
sale of a material part of DRC whether by way of reorganization or otherwise, without the consent of ISIS provided DRC gives prompt written notice of such assignment to ISIS and the assignee (or in
the case of any financial institution or other lender, any purchaser from such financial institution or other lender) agrees in writing to be bound hereby and (ii)&nbsp;ISIS may assign this
Agreement in connection with the sale of all or substantially all of its business (whether by sale of assets, stock or merger) without the consent of DRC provided ISIS gives prompt written notice of
such assignment to DRC and the assignee agrees in writing to be bound hereby. </FONT></P>

<P><FONT SIZE=2><B>7.5&nbsp;&nbsp;&nbsp;&nbsp;Expenses.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each party shall be responsible for and bear all of its own costs and expenses (including but not limited to any
legal fees, any accountants' fees and any brokers' or finders' or investment banking fees or any prior commitment in respect thereof) with regard to the negotiation and consummation of the transaction
contemplated hereby. Notwithstanding the foregoing, each party represents and warrants to the other that the other party will not be liable for any brokerage
commission, finder's fee or other like payment in connection with the transactions contemplated hereby because of any action taken by, or agreement or understanding reached by, that party. </FONT></P>

<P><FONT SIZE=2><B>7.6&nbsp;&nbsp;&nbsp;&nbsp;Entire Agreement.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>This Agreement, together with the Schedules to this Agreement and officer's certificates and other
documents to be delivered pursuant hereto (which are incorporated herein by reference), supersedes any other agreement, whether written or oral, that may have been made or entered into by the parties
hereto relating to the matters contemplated hereby, including the LOI and the letter of intent between the parties dated [***], 2004, and constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof. Any conflict or inconsistency between the main body of this Agreement, the Schedules and/or any other documents to be delivered pursuant
hereto shall be resolved in accordance with the following order of priority: (a)&nbsp;main body of this Agreement; (b)&nbsp;Schedules; and (c)&nbsp;other documents, </FONT> <FONT SIZE=2><I>except</I></FONT><FONT SIZE=2> that the Schedule of
Exceptions is intended to qualify ISIS' representations and warranties under this Agreement. </FONT></P>

<P><FONT SIZE=2><B>7.7&nbsp;&nbsp;&nbsp;&nbsp;True Sale Security Agreement</B></FONT><FONT SIZE=2>. </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>ISIS
and DRC intend and agree that the sale, assignment, transfer, set-over and conveyance of the Assigned Rights hereunder be a true sale by ISIS to DRC that is absolute
and irrevocable (except as permitted and contemplated by Section&nbsp;5.3 hereof) and that provides DRC with the full benefits of ownership of the Assigned Rights, and neither ISIS nor DRC intends
the transactions contemplated hereunder to be, or for any purpose to be characterized as, a loan from DRC to ISIS. ISIS waives any right to contest or otherwise assert that this Agreement is other
than a true sale by ISIS to DRC under applicable law, which waiver shall be enforceable against ISIS in any bankruptcy or insolvency proceeding relating to ISIS.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>It
is not the intention of DRC or ISIS that the sale, assignment, transfer, set-over and conveyance of the Assigned Rights by ISIS be deemed a grant of a security interest
in the Assigned Rights by ISIS to DRC to secure a debt or other payment obligation of ISIS. However, without in any manner qualifying, derogating from, or modifying the foregoing, to the extent that,
the intention of the parties notwithstanding, any court or other tribunal having jurisdiction thereof determines that the Assigned Rights or any of the payments with respect thereto are property of
ISIS or its bankruptcy estate, in order to secure the prompt payment and performance as and when due of ISIS' obligations hereunder, ISIS hereby grants to DRC </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<UL>

<P><FONT SIZE=2>a
first priority security interest in and to all of ISIS' right, title and interest in, to and under the Assigned Rights and the proceeds thereof to secure (i)&nbsp;the rights of DRC hereunder and
(ii)&nbsp;a loan by DRC to ISIS in the amount of the Purchase Price plus a reasonable return for the Assigned Rights. ISIS agrees that, with respect to the Assigned Rights and the proceeds thereof,
ISIS intends that DRC will have all of the rights and remedies of a perfected first priority secured party under the Uniform Commercial Code. ISIS and DRC shall, consistent with this Agreement, take
such actions as may be necessary to help ensure that the foregoing precautionary grant of a security interest to DRC be a first priority perfected security interest in favor of DRC under applicable
law and will be maintained as such throughout the term of this Agreement. Without limiting the generality of the foregoing, ISIS agrees that it shall not, and shall not assist or encourage any third
party to, challenge or contest the validity, attachment, perfection or priority of such security interest. The foregoing precautionary grant of a security interest to DRC by ISIS is granted as of the
date of this Agreement and shall attach to the Assigned Rights as of the date of this Agreement. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2><B>7.8&nbsp;&nbsp;&nbsp;&nbsp;Amendments, Supplements, Waivers.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>This Agreement may be amended or supplemented only by a written agreement signed by DRC
and ISIS. Any waiver of, or consent to depart from, the requirements of any provision of this Agreement shall be effective only if it is in writing and signed by the party giving it, and only in the
specific instance and for the specific purpose for which it has been given. No failure on the part of any party to exercise, and no delay in exercising, any right under this Agreement shall operate as
a waiver of such right. No single or partial exercise of any such right shall preclude any other or further exercise of such right or the exercise of any other right. </FONT></P>


<P><FONT SIZE=2><B>7.9&nbsp;&nbsp;&nbsp;&nbsp;Interpretation.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>When a reference is made in this Agreement to Articles, Sections or Schedules, such reference shall be to
an Article, Section or Schedule to this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words
"without limitation" and shall not be construed to limit any general statement which it follows to the specific or similar items or matters immediately following it. "Person" includes an individual,
body corporate, partnership, joint venture, cooperative, trust or unincorporated organization, domestic or foreign government or any agency or instrumentality thereof, or any other entity recognized
by law. Neither party hereto shall be or be deemed to be the drafter of this Agreement for the purposes of construing this Agreement against one party or the other. </FONT></P>

<P><FONT SIZE=2><B>7.10&nbsp;&nbsp;&nbsp;&nbsp;Public Announcement.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The parties agree to discuss and coordinate all public announcements concerning the transactions
contemplated herein except as may be necessary, in the opinion of counsel
to the party making such disclosure, to comply with the requirements of any applicable law. If any such public statement or release is so required, the party making such disclosure shall consult with
the other party prior to making such statement or release, and the parties shall use reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory
to all parties. The form of press release to be issued by DRC immediately after Closing with respect to this transaction shall be mutually agreed to by the parties on or prior to the Effective Date.
Notwithstanding the foregoing, nothing herein shall prohibit DRC or any of its affiliates from disclosing DRC's interest in the Assigned Rights to any of its or their affiliates, agents,
representatives and employees, in any annual or other periodic corporate report, to any financing sources (whether equity or debt) and its or their legal, financial or industry advisors, or to any
actual or potential underwriter and its legal, accounting and industry advisors, in connection with securing financing. </FONT></P>


<P><FONT SIZE=2><B>7.11&nbsp;&nbsp;&nbsp;&nbsp;Headings and Captions.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The headings and captions in this Agreement are for convenience and reference purposes only and
shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. </FONT></P>

<P><FONT SIZE=2><B>7.12&nbsp;&nbsp;&nbsp;&nbsp;Currency.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Unless specified otherwise, all statements of or references to monetary amounts in this Agreement are to US
Dollars. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P><FONT SIZE=2><B>7.13&nbsp;&nbsp;&nbsp;&nbsp;Severability.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall
nevertheless be given full force and effect. </FONT></P>

<P><FONT SIZE=2><B>7.14&nbsp;&nbsp;&nbsp;&nbsp;Governing Law.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>This Agreement shall be governed by and construed, interpreted and enforced in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of law thereof. Subject to Section&nbsp;7.15, the parties hereto attorn to and submit to the non-exclusive
jurisdiction of the courts of the State of New York. </FONT></P>

<P><FONT SIZE=2><B>7.15&nbsp;&nbsp;&nbsp;&nbsp;Binding Arbitration of Certain Disputes.</B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>Any
dispute, controversy or claim directly relating to whether (i)&nbsp;[***], (ii)&nbsp;[***], (iii)&nbsp;the Special Event of
Default described in Subsection [***] of the definition thereof set forth in Schedule "A" hereto has occurred, (iv)&nbsp;the Level I Event of Default described in Subsection
[***] of the definition thereof set forth in Schedule "A" hereto has occurred, (v)&nbsp;the obligations under Subsection [***] or Subsection
[***] have been fulfilled and/or (vi)&nbsp;the obligations under Section [***] have been fulfilled (each an "</FONT><FONT SIZE=2><B>Arbitrable
Matter</B></FONT><FONT SIZE=2>"), shall be resolved as follows. The senior management of both parties shall meet to attempt to resolve such Arbitrable Matter. If the senior management of each party
cannot resolve such Arbitrable Matter within [***] days after either party requests such a meeting of the senior management of the parties, then at either party's option,
dispute resolution may be pursued as described in Subsection 7.15(b).
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Except
as otherwise provided in this Agreement, any Arbitrable Matter which the parties are unable to resolve pursuant to the procedures set forth in Subsection 7.15(a) shall be
submitted to and resolved by an arbitration conducted in the English language in (i)&nbsp;New York, New York if initiated by ISIS and (ii)&nbsp;in San Diego, CA if initiated by DRC, in each case
in accordance with the rules for commercial arbitration, as then in effect, of the American Arbitration Association, subject to the terms as herein provided (including, notwithstanding the rules or
practices of the American Arbitration Association, the designation of three (3)&nbsp;arbitrators as provided in this Subsection 7.15(b)). Within [***] days following a demand
for arbitration submitted to the American Arbitration Association, or within such other time period as the parties may agree, ISIS and DRC shall each designate one arbitrator having substantial
professional experience with regard to drug patents, drug valuation and the interpretation of contracts similar to this Agreement who is not an employee or member or former employee or former member
of a firm or organization that the designating party regularly retains to provide legal advice ("</FONT><FONT SIZE=2><B>Independent</B></FONT><FONT SIZE=2>"). Within [***]
days after the appointment of the two arbitrators, the two arbitrators shall designate a third arbitrator mutually acceptable to them who has similar professional experience and is Independent of the
parties. If the arbitrator chosen by ISIS and the arbitrator chosen by DRC fail to agree upon the third arbitrator within such [***] day period, a third arbitrator with
professional experience as aforesaid and Independent of the parties shall be appointed by the American Arbitration Association as soon as practicable and in any event no later than
[***] days following receipt by the American Arbitration Association of notice of the need to appoint a third arbitrator. Disputes about arbitration procedure shall be resolved
by the arbitrators, or failing agreement, by the American Arbitration Association.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>The
three arbitrators shall commence consideration of the dispute at issue at a mutually agreed upon time within [***] days (or such longer period as may be
acceptable to the parties) after the designation of the three arbitrators. The parties hereby agree that at any time after the designation of the three arbitrators, a majority of the arbitrators
(either on their own or as the result of a request by either party) can, if the arbitrators consider it appropriate in the circumstances of the dispute at hand, require (i)&nbsp;DRC to pay
components of the Purchase Price, then due or at such time as they later come due, into [***], to be held on </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kg1047_1_22"> </A>
<UL>
<UL>

<P><FONT SIZE=2>terms
considered appropriate by the majority of the arbitrators, (ii)&nbsp;the parties to jointly instruct [***] to retain payments of the Royalty Interest in
[***], and/or (iii)&nbsp;if the Arbitrable Matter concerns a Special Event of Default or Liquidated Damages, require Isis to pay an assumed Liquidated Damages Amount (as
determined by the arbitrators) into [***], in each case during and until resolution of the Arbitrable Matter at hand. The arbitrators shall not have the authority to modify any
term or provision of this Agreement. The arbitrators may proceed to an award notwithstanding the failure of either party (after receiving timely and proper notice) to participate in the proceedings.
The arbitration proceeding shall be held in private, with all documents, materials, exhibits and testimony being considered and designated confidential, and shall include an opportunity for the
parties to conduct discovery in advance of the proceeding, which discovery may be limited by rules established by the arbitrators. In no event shall punitive damages be assessed against either party.
Notwithstanding the foregoing, the parties agree that they shall attempt and they intend that they and the arbitrators shall use their best efforts in that attempt, to conclude the arbitration
proceeding and have a final decision from the arbitrators within [***] days from the date the three arbitrators begin hearing the dispute; </FONT><FONT SIZE=2><I>provided,
however</I></FONT><FONT SIZE=2>, that the arbitrators shall be entitled to extend such [***] day period one or more times, if a majority of the arbitrators deem such extension
desirable. The arbitrators shall immediately deliver a written decision with respect to the dispute to each of the parties, who shall promptly act in accordance therewith. Each party agrees that any
decision of the arbitrators shall be final, conclusive and binding, no appeal or review shall lie therefrom. It is specifically understood and agreed that either party may enforce any award rendered
pursuant to the arbitration provisions of this Section&nbsp;7.15 by bringing suit in any New York or California state or federal court of competent jurisdiction. </FONT></P>

</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>If
any time limit set forth in this Section&nbsp;7.15 is not met by either party, by the arbitrators or by the American Arbitration Association, as applicable, then either party may
on written notice to the arbitrators or the American Arbitration Association, as the case may be, and the other party submit the Arbitrable Matter to a court of competent jurisdiction for resolution
and the arbitration proceedings shall immediately terminate and the costs and expenses attributable to the arbitrators shall be borne equally by the parties.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>Nothing
in this Section&nbsp;7.15 shall prevent either party from joining the other party in any court or other legal proceeding commenced by a third party or require any dispute,
controversy or claim that is not an Arbitrable Matter to be arbitrated, consolidated, held in obeyance or suspended. For greater certainty, any dispute, controversy or claim that is not an Arbitrable
Matter may not be submitted to arbitration but may be submitted by either party to a court of competent jurisdiction for resolution. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>7.16&nbsp;&nbsp;&nbsp;&nbsp;WAIVER OF JURY TRIAL.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>EACH PARTY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN
CONNECTION WITH OR RELATING TO THIS AGREEMENT OR ANY AGREEMENT ENTERED INTO PURSUANT HERETO AND AGREES THAT ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE
PROVISION OF THIS SECTION 7.15 SHALL NOT APPLY TO ANY ACTION TO ENFORCE THE LICENSED PATENT RIGHTS AGAINST EYETECH OR OTHERS IN THE FIELD. </FONT></P>

<P><FONT SIZE=2><B>7.17&nbsp;&nbsp;&nbsp;&nbsp;Time.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Time is of the essence of this Agreement and each of its provisions. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.18&nbsp;&nbsp;&nbsp;&nbsp;Counterparts and Facsimile Execution.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed in two or more counterparts, each of
which shall be an original, but all of which together shall constitute one and the same instrument. To evidence the fact that it has executed this Agreement, a party may send a copy of its executed
counterpart to the other party by facsimile transmission. That party shall be deemed to </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kg1047_1_23"> </A>
<BR>

<P><FONT SIZE=2>have
executed this Agreement on the date it sent such facsimile transmission. In such event, such party shall forthwith deliver to the other party the counterpart of this Agreement executed by such
party. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>IN WITNESS WHEREOF,</B></FONT><FONT SIZE=2> the parties have executed this Agreement as of the Effective Date. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2><B>ISIS PHARMACEUTICALS, INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Name: B. Lynne Parshall<BR>
Title: Executive Vice President, CFO and Director</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD COLSPAN=2><BR><FONT SIZE=2><B>DRUG ROYALTY USA, INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="54%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BEHZAD KHOSROWSHAHI</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Name: Behzad Khosrowshahi Title: President</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_ki1047_1_24"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ki1047_schedule__a__definitions"> </A>
<A NAME="toc_ki1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE "A"<BR>  DEFINITIONS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized terms used in this Agreement and not defined in this Schedule "A" shall have the meanings attributed thereto in the License Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Additional Period"</B></FONT><FONT SIZE=2> means the number of days between the date of termination of the License Agreement and the date of first commercial
sale of the Product under the New License Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Aggregate Payments"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 5.A.2(a) of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Aggregate Receipts"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 5.A.2(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Agreement"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Arbitrable Matter"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 7.15(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Assigned Rights</B></FONT><FONT SIZE=2>" means ISIS' entire right, title and interest in and to the following rights under the License Agreement: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>the
right to receive the Royalty Interest;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>the
right to receive royalty statements, as provided under Sections 4.1 and 8.4 of the License Agreement, in respect of Net Sales of the Product made on or before December&nbsp;31,
2009;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>the
right to audit those records of Eyetech relating or relevant to Net Sales of the Product made on or before December&nbsp;31, 2009, as provided under Sections 4.4 and 8.4 of
the License Agreement; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iv)</FONT></DT><DD><FONT SIZE=2>the
right, upon the exercise by DRC of its rights under the Security Agreement, to exploit the Patents, the Licensed Patent Rights and/or the Product in the Field. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>Notwithstanding
the foregoing, except for as specified in clauses (i)&nbsp;through (iv)&nbsp;above, ISIS retains all it right, title and interests under the License Agreement, including, but not
limited to its right to any amounts payable by Eyetech as provided under Sections 3.1.1 or 3.1.2 of the License Agreement and, subject to the terms of this Agreement and the Security Agreement, the
right to exploit (including through the granting of Permitted Licenses) the Patents, Licensed Patent Rights and/or Product outside the Field (collectively, the "</FONT><FONT SIZE=2><B>ISIS
Rights</B></FONT><FONT SIZE=2>"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Business Day"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;7.3 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Cash Burn"</B></FONT><FONT SIZE=2> has the meaning attributed thereto in Section&nbsp;3.9 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Closing"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;4.1 of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Communication"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 3.1(b) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***] </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Cure Period"</B></FONT><FONT SIZE=2> has the meaning set out in the definition of Special Events of Default. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Damages"</B></FONT><FONT SIZE=2> means any damage, loss, claim, cost, liability, action, cause of action, demand or expense, including reasonable legal fees,
suffered or incurred by either party in connection with this Agreement, the Security Agreement and/or the Eyetech Consent. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Default Date"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 5.A.2(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"DRC"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"DRC Closing Documents"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 4.3(b). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Effective Date"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ki1047_1_25"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Encumbrance"</B></FONT><FONT SIZE=2> means any lien, charge, security interest, mortgage, option, privilege, pledge, trust or deemed trust (whether contractual,
statutory or otherwise arising) or any other encumbrance, right or claim of any other person of any kind whatsoever whether choate or inchoate, other than the Permitted Licenses. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"EU"</B></FONT><FONT SIZE=2> means the European Union as constituted from time to time. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"EU Application"</B></FONT><FONT SIZE=2> means a patent application filed by ISIS with the European Patent Office that if issued would meet the requirements for
an EU Patent. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"EU Patent"</B></FONT><FONT SIZE=2> means one or more patent(s) issued in the EU, the issued claims of which [***]. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"EU Percentage"</B></FONT><FONT SIZE=2> means (i)&nbsp;[***] per cent ([***]%) if the applicable Special Event
of Default occurs during the first [***] months following the first commercial sale of the Product in the US (the "</FONT><FONT SIZE=2><B>US Twenty-four Month
Period</B></FONT><FONT SIZE=2>"); or (ii)&nbsp;the percentage of worldwide Net Sales that are comprised of Net Sales of the Product in the EU for the [***] calendar months
immediately preceding the Default Date, if the Default Date occurs after the expiry of the US [***] Month Period. The percentage of worldwide Net Sales that are comprised of
Net Sales of the Product in the EU shall be determined by examining EyeTech's royalty reports delivered under the License Agreement. If such reports do not provide enough information to determine the
appropriate percentage, then the appropriate percentage shall be determined based on information of US and EU Net Sales as reported by IMS. If IMS (or a comparable company acceptable to both DRC and
ISIS, acting reasonably) is not able to provide such data, then the appropriate percentage shall be determined based on publicly available information acceptable to both DRC and ISIS acting
reasonably. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"EU</B></FONT><FONT SIZE=2> [***]</FONT><FONT SIZE=2><B>Month Period"</B></FONT><FONT SIZE=2> has the meaning set forth in the definition
of US Percentage. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Event of Default"</B></FONT><FONT SIZE=2> means any Level I Event of Default or any Level II Event of Default. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Exercise Date"</B></FONT><FONT SIZE=2> means the date upon which ISIS must or does exercise any right or perform any obligation of ISIS under the Patents or
Licensed Patent Rights (to the extent that they directly or indirectly relate to the Field and ISIS' obligations under this Agreement) to comply with the License Agreement or must enforce or defend
such right to avoid the loss of such right or any adverse effect to ISIS' rights under the Patents or Licensed Patent Rights to the extent that they directly or indirectly relate to the Field and
ISIS' obligations under this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Eyetech</B></FONT><FONT SIZE=2>" means Eyetech Pharmaceuticals,&nbsp;Inc. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Eyetech Breach Date</B></FONT><FONT SIZE=2>" has the meaning set out in the definition of Special Events of Default. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Eyetech Consent"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;1.3 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"FDA"</B></FONT><FONT SIZE=2> means the United States Food and Drug Administration. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Field</B></FONT><FONT SIZE=2>" means [***]. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"First Payment Date"</B></FONT><FONT SIZE=2> has the meaning set forth in clause&nbsp;(i) of Subsection 1.2(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Independent"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 7.15(b) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"IMS"</B></FONT><FONT SIZE=2> means IMS Health Incorporated. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"ISIS"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"ISIS Closing Documents"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 4.2(d) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"ISIS Rights"</B></FONT><FONT SIZE=2> has the meaning set forth in the definition of Assigned Rights above. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"ISIS Royalty Interest"</B></FONT><FONT SIZE=2> means all Royalties not forming part of the Royalty Interest. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

<HR NOSHADE>
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<A NAME="page_ki1047_1_26"> </A>
<BR>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"Level I Events of Default".</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the following events will constitute a Level I Event of Default under this Agreement: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>A.</B></FONT></DT><DD><FONT SIZE=2>if DRC fails to make any payment of the Purchase Price when due and does not remedy such failure within [***]
days after receiving notice from ISIS specifying the failure;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>B.</B></FONT></DT><DD><FONT SIZE=2>if ISIS, without the prior written consent of DRC:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>materially
fails to perform and fulfill its obligations under the License Agreement in accordance with the terms thereof, except as permitted under Section&nbsp;9.9 of the License
Agreement, or terminates the License Agreement; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>fails
to diligently and in a timely manner continue to process, prosecute and maintain the Patents in each of the countries of the Major Market in which ISIS has an issued Patent or
pending Patent application such that they are not in full force and effect and do not contain claims which, but for the License Agreement, would be infringed by the making, using and selling of the
Product, and does not remedy such default, in the case of a default that is remediable, within [***] days after ISIS receives written notice from DRC specifying such default;
<BR><BR> </B></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>C.</B></FONT></DT><DD><FONT SIZE=2>if:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>the
representations and warranties made by ISIS under Subsection 2.1(c) and the first sentence of Subsection 2.1(f) (including in the certificate(s) received by DRC pursuant to
Subsection 1.2(c)), prove to be false or incorrect; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>any
other representation or warranty made by ISIS under this Agreement and any ISIS Closing Documents on the Effective Date proves to be false or incorrect in any material respect;
or
<BR><BR> </B></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>D.</B></FONT></DT><DD><FONT SIZE=2>if:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>either
party does not generally pay its debts as they become due,
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>an
authorized officer of a party admits in writing such party's inability to pay its debts generally,
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(iii)</FONT></DT><DD><FONT SIZE=2>either
party makes an assignment for the benefit of creditors or commits an act of insolvency or bankruptcy within the meaning of applicable law;
<BR><BR> </B></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>E.</B></FONT></DT><DD><FONT SIZE=2>if any proceeding, voluntary or involuntary, is commenced respecting either party pursuant to any statute relating to bankruptcy,
insolvency, reorganization of debts, liquidation, winding up or dissolution; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, in the case of any involuntary bankruptcy proceeding
such right to terminate will only become effective if the party consents to the involuntary bankruptcy or such proceeding is not dismissed within [***] days of the filing
thereof;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>F.</B></FONT></DT><DD><FONT SIZE=2>if any receiver, manager, trustee, sequester, custodian or liquidator or person with similar powers is appointed judicially or
extrajudicially for either party or for any material portion of its property;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>G.</B></FONT></DT><DD><FONT SIZE=2>if either party passes any resolution for its liquidation, winding up or dissolution or ceases to carry on business in the ordinary
course; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>H.</B></FONT></DT><DD><FONT SIZE=2>if ISIS breaches, or fails to observe or perform, any material agreement, covenant or provision in this Agreement or the ISIS Closing
Documents and does not remedy such breach or failure, in the case of a breach or failure that is remediable, within [***] days after ISIS receives written notice from DRC
specifying such breach or failure. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

<HR NOSHADE>
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<A NAME="page_ki1047_1_27"> </A>
<UL>
<UL>
</UL>
</UL>
<UL>

<P><FONT SIZE=2>For
purposes of clarification, ISIS granting a Permitted License cannot be considered a Level I Event of Default. </FONT></P>

</UL>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"Level II Events of Default".</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each of the following events will constitute a Level II Event of Default under this Agreement: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>A.</B></FONT></DT><DD><FONT SIZE=2>if ISIS, without the prior written consent of DRC:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(i)</FONT></DT><DD><FONT SIZE=2>sells,
assigns, transfers, delivers, licenses or otherwise disposes of any of the Patents for use in the Field; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(ii)</FONT></DT><DD><FONT SIZE=2>creates
or permits to exist any Encumbrance (other than the Encumbrance created in favor of DRC under the Security Agreement) on the Patents, the License Agreement or the Assigned
Rights;
<BR><BR> </B></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>B.</B></FONT></DT><DD><FONT SIZE=2>if ISIS fails to pay the Liquidated Damages Amount or the amounts required pursuant to Subsections 5.A.2(b) or (c), as applicable, when
due; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>C.</B></FONT></DT><DD><FONT SIZE=2>if ISIS fails to meet or exceed the Minimum Liquidity or materially breaches Section&nbsp;3.9 of this Agreement; </FONT> <FONT SIZE=2><I>provided, however</I></FONT><FONT
SIZE=2>, that this subsection C shall no longer constitute a Level II Event of Default when [***]. </FONT></DD></DL>

<UL>

<P><FONT SIZE=2>For
purposes of clarification, ISIS granting a Permitted License cannot be considered a Level II Event of Default. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>License Agreement</B></FONT><FONT SIZE=2>" means the license agreement dated as of December&nbsp;31, 2001 between ISIS and Eyetech, as such agreement may be
amended, replaced, succeeded or substituted from time to time. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Licensed Patent Rights</B></FONT><FONT SIZE=2>" has the meaning ascribed to it in the License Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Liquidated Damages Amount"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 5.A.2(a) of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Liquidity"</B></FONT><FONT SIZE=2> has the meaning attributed thereto in Section&nbsp;3.9 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Loan"</B></FONT><FONT SIZE=2> means the loan granted by Silicon Valley Bank to ISIS in the original principal amount of US$32,000,000 pursuant to the Silicon
Valley Bank Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***]
</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"LOI"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Major Market"</B></FONT><FONT SIZE=2> means the [***]. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[***] </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Material Agreement"</B></FONT><FONT SIZE=2> at any time means, any contract, commitment or instrument to which ISIS is a party that is listed as an exhibit to a
periodic or current report filed by ISIS with the United States Securities and Exchange Commission at such time. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Minimum Liquidity"</B></FONT><FONT SIZE=2> at the time immediately prior to the First Payment Date, Second Payment Date or Third Payment Date, as applicable,
means Liquidity equal to the total of: (i)&nbsp;all amounts (including principal and interest) of the Loan (or any replacement thereof pursuant to Section&nbsp;3.9 of this Agreement) then
outstanding; (ii)&nbsp;the Liquidated Damages Amount, assuming for the purposes of this definition that the Purchase Price component that is due on the immediately following payment date has been
paid by DRC; and (iii)&nbsp;ISIS' Cash Burn as the calculation relates to the [***] period ending immediately prior to the date of the certificate contemplated by Subsection
1.2(b). </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ki1047_1_28"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Naked Manufacturing License"</B></FONT><FONT SIZE=2> means a Permitted License granted by ISIS that includes rights to one or more [***]
Patents and that is a license to enable the manufacture of products (at scales of more than [***]) outside the Field to conduct drug development (but not solely drug research)
but does not include a Permitted License to enable the manufacture of a product that is outside the Field and that is discovered, developed or commercialized under a bona fide collaboration between
ISIS and a third party. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Net Sales"</B></FONT><FONT SIZE=2> has the meaning set forth in the License Agreement [***], provided that if DRC re-conveys
to ISIS the Assigned Rights, or any part thereof, pursuant to Subsection 5.3(a), Subsection 5.A.2 (b)&nbsp;or Subsection 5.A.2 (c)&nbsp;of this Agreement, </FONT><FONT SIZE=2><B>"Net
Sales"</B></FONT><FONT SIZE=2> shall be deemed to mean the Net Sales that relate to the Assigned Rights, if any, that have been retained by DRC. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"New Royalty Interest"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;3.3 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"New License Agreement"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;3.3 of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"New US Patent"</B></FONT><FONT SIZE=2> means a US patent that is issued to ISIS based on the US Application, the issued claims of which
[***]. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Note Agreements"</B></FONT><FONT SIZE=2> means, collectively, the Notes, the indenture between ISIS and Wells Fargo Bank Minnesota, National Association, as
trustee, dated as of May&nbsp;1, 2002 (the "</FONT><FONT SIZE=2><B>Note Indenture</B></FONT><FONT SIZE=2>") and any related documentation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Notes"</B></FONT><FONT SIZE=2> means the five and one half per cent (5<SUP>1</SUP>/<SMALL>2</SMALL>%) convertible subordinated notes of ISIS due 2009. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Patents"</B></FONT><FONT SIZE=2> means the patents listed on Schedule "E" hereto, as such Schedule may be updated from time to time pursuant to Subsection 1.2(c)
or Subsection 3.1(d). For avoidance of doubt, "Patents" are included in the Licensed Patent Rights. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Permitted License(s)</B></FONT><FONT SIZE=2>" means a license granted by ISIS to a third party to exploit the Patents outside the Field that does not grant the
licensee thereunder a security interest in the Patents. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>person</B></FONT><FONT SIZE=2>" includes an individual, corporation, partnership, joint venture, trust, syndicate, unincorporated organization, the Crown or any
agency or instrumentality thereof or any other entity recognized by law. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Product</B></FONT><FONT SIZE=2>" means Eyetech's EYE001 NX1838 non-antisense therapeutic product (also known as Macugen), or any product containing
Eyetech's EYE001 NX1838 non-antisense therapeutic product for the treatment of ophthalmic conditions. The Product will also include any minor chemical modifications to EYE001 NX1838. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Purchase Price</B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;1.2 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Representatives</B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.4 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Royalties</B></FONT><FONT SIZE=2>" means all of the royalties payable by Eyetech in respect of Net Sales made by Eyetech, its affiliates and sublicensees made on
or before December&nbsp;31, 2009 (as calculated in accordance with and as provided under Sections 3.1.3, 4.1 and 8.4 of the License Agreement) and any collections or recoveries received by ISIS or
lump sum payments made by Eyetech or its sublicensees in lieu thereof, including in connection with any litigation to enforce the License Agreement or the Licensed Patent Rights. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Royalty Interest</B></FONT><FONT SIZE=2>" means, in connection with Net Sales of the Product made on or before December&nbsp;31, 2009: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>one
hundred percent (100%) of any Royalties on annual Net Sales where such Net Sales are less than or equal to five hundred million US dollars (US$500,000,000) for any calendar year; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ki1047_1_29"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>fifty
per cent (50%) of any Royalties on annual Net Sales where such Net Sales greater than five hundred million US dollars (US$500,000,000) but less than or equal to one billion US
dollars (US$1,000,000,000) for any calendar year; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>ten
per cent (10%) of any Royalties on annual Net Sales where such Net Sales are greater than one billion US dollars (US$1,000,000,000) for any calendar year. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Schedule of Exceptions</B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;2.1 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Second Payment Date"</B></FONT><FONT SIZE=2> has the meaning set forth in clause&nbsp;(ii) of Subsection 1.2(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Secondary Market"</B></FONT><FONT SIZE=2> means any country requested by DRC via written notice to ISIS to be treated as a Secondary Market country for the
purposes hereof (effective upon ISIS' receipt of such notice). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Security Agreement</B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;3.6 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Selected SVB Covenants"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 3.9(b) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Silicon Valley Bank Agreement</B></FONT><FONT SIZE=2>" means the loan and security agreement between ISIS and Silicon Valley Bank dated December&nbsp;15, 2003. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Silicon Valley Bank Consent</B></FONT><FONT SIZE=2>" has the meaning set forth in Subsection 4.2(d) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Special Event of Default</B></FONT><FONT SIZE=2>" means the occurrence of any one of the following events prior to the earlier of December&nbsp;31, 2009 and
the date on which both the [***]: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>A.</B></FONT></DT><DD><FONT SIZE=2>Eyetech fails at any time to pay to [***] any Royalties on Net Sales of the Product made in the United States or
in the EU or in both the United States and EU (an "</FONT><FONT SIZE=2><B>Eyetech Breach Date</B></FONT><FONT SIZE=2>") excluding any such failure that is cured by Eyetech making the required payment
within [***] days following written notice to Eyetech by DRC or ISIS of such failure (the "</FONT><FONT SIZE=2><B>Cure Period</B></FONT><FONT SIZE=2>"); </FONT> <FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that if Eyetech provides ISIS
or DRC a Communication, after an Eyetech Breach Date and prior to the expiry of the applicable Cure
Period, to the effect that Eyetech [***], then the date of such Communication shall be the date of the occurrence of this Special Event of Default. For greater certainty, any
amounts determined to be payable by Eyetech as a result of an audit of Eyetech's records under the License Agreement will not be considered a failure to pay for the purposes of this Subsection
provided that Eyetech pays the Royalty so determined to [***] in accordance with the License Agreement and the Eyetech Consent;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>B.</B></FONT></DT><DD><FONT SIZE=2>the License Agreement is terminated by Eyetech or by ISIS without the prior written consent of DRC;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>C.</B></FONT></DT><DD><FONT SIZE=2>the validity or enforceability of [***] is challenged in an action based on 35 U.S.C. &sect;&sect;
100 et seq. and is subject to a final </FONT><FONT SIZE=2><I>Markman</I></FONT><FONT SIZE=2> decision that provides a basis for a dispositive motion on validity or enforceability such that
[***] is found to be invalid and/or unenforceable;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>D.</B></FONT></DT><DD><FONT SIZE=2>the occurrence of a default or event of default under (i)&nbsp;the Silicon Valley Bank Agreement or any other agreement relating to
the Loan or any replacement thereof that is not cured in the period, if any, prescribed thereunder or waived in writing by Silicon Valley Bank or (ii)&nbsp;any of the applicable covenants set out in
Section&nbsp;3.9 of this Agreement; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>E.</B></FONT></DT><DD><FONT SIZE=2>the occurrence of a default or event of default under the Note Agreements that is not cured in the period, if any, prescribed
thereunder. </FONT></DD></DL>
<UL>

<P><FONT SIZE=2>For
purposes of clarification, ISIS granting a Permitted License cannot be considered a Special Event of Default. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Special Event of Default Remedies</B></FONT><FONT SIZE=2>" has the meaning set forth in Section&nbsp;5.A.1 of this Agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ki1047_1_30"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Terminating Party</B></FONT><FONT SIZE=2>" has the meaning set forth in Subsection 5.3(c) of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Third Payment Date"</B></FONT><FONT SIZE=2> has the meaning set forth in clause&nbsp;(iii) of Subsection 1.2(a) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>US Application</B></FONT><FONT SIZE=2>" means a US patent application filed by ISIS claiming [***] which if issued would meet the
requirements for a New US Patent. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>US Percentage</B></FONT><FONT SIZE=2>" means (i)&nbsp;[***] if the applicable Special Event of Default occurs during the first
[***] months following the first commercial sale of the Product in the EU (the "</FONT><FONT SIZE=2><B>EU</B></FONT><FONT SIZE=2> [***] </FONT> <FONT SIZE=2><B>Month Period</B></FONT><FONT SIZE=2>"); or (ii)&nbsp;the percentage of worldwide Net Sales
that are comprised of Net Sales of the Product in the United States for the
[***] calendar months immediately preceding the Default Date, if the Default Date occurs after the expiry of the EU [***] Month Period. The percentage
of worldwide Net Sales that are comprised of Net Sales of the Product in the United States shall be determined by examining EyeTech's royalty reports delivered under the License Agreement. If such
reports do not provide enough information to determine the appropriate percentage, then the appropriate percentage shall be determined based on information of US and EU Net Sales as reported by IMS.
If IMS (or a comparable company acceptable to both DRC and ISIS, acting reasonably) is not able to provide such data, then the appropriate percentage shall be determined based on publicly available
information acceptable to both DRC and ISIS acting reasonably. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>US</B></FONT><FONT SIZE=2> [***] </FONT><FONT SIZE=2><B>Month Period</B></FONT><FONT SIZE=2>" has the meaning set forth in the
definition of EU Percentage. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_kk1047_1_31"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kk1047_schedule__b__calculation_of_ro__sch02897"> </A>
<A NAME="toc_kk1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE "B"<BR>  CALCULATION OF ROYALTY INTEREST AND ISIS ROYALTY INTEREST    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets out an example of how any amounts payable to DRC and to ISIS (if applicable) pursuant to the Royalty Interest and the ISIS Royalty Interest,
respectively, will be calculated: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>If
as of the expiry of the first calendar quarter of Year X Net Sales for Year X are less than or equal to five hundred million US dollars (US$500,000,000) (the
"</FONT><FONT SIZE=2><B>First Threshold</B></FONT><FONT SIZE=2>"), then the Royalty Interest shall equal one hundred per cent (100%) of all royalties payable for such quarter (the
"</FONT><FONT SIZE=2><B>First DRC Payment</B></FONT><FONT SIZE=2>"). i.e.: </FONT></DD></DL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="38%" ALIGN="CENTER"><FONT SIZE=1><B>Cumulative Net Sales as of<BR>
Expiry of First Calendar<BR>
Quarter of Year X</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="38%" ALIGN="CENTER"><FONT SIZE=1><B>Royalty Interest/<BR>
First DRC Payment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="18%" ALIGN="CENTER"><FONT SIZE=1><B>ISIS Royalty Interest</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>US$100,000,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="38%"><FONT SIZE=2>100% of all royalties payable for first calendar quarter<BR>
<BR>
(i.e.: 100% &times;[***]% &times; US$100,000,000 = US$[***])</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="18%"><FONT SIZE=2>Nil</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>If
as of the expiry of the second calendar quarter of Year X cumulative Net Sales for Year X exceed the First Threshold but do not exceed one billion US dollars (US$1,000,000,000)
(the "</FONT><FONT SIZE=2><B>Second Threshold</B></FONT><FONT SIZE=2>"), all royalties payable for such calendar quarter shall be calculated and paid as follows: (A)&nbsp;to DRC, the Royalty
Interest, which shall equal (I)&nbsp;one hundred per cent (100%) of royalties payable on cumulative Net Sales for Year X at or below the First Threshold plus (II)&nbsp;fifty per cent (50%) of
royalties payable on cumulative Net Sales for Year X above the First Threshold less (III)&nbsp;the First DRC Payment (collectively, the "</FONT><FONT SIZE=2><B>Second DRC
Payment</B></FONT><FONT SIZE=2>"); and (B)&nbsp;to ISIS, the ISIS Royalty Interest, which shall equal fifty per cent (50%) of royalties payable on cumulative Net Sales for Year X above the First
Threshold (the "</FONT><FONT SIZE=2><B>First ISIS Payment</B></FONT><FONT SIZE=2>"). i.e.: </FONT></DD></DL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>Cumulative Net Sales as of<BR>
Expiry of Second Calendar<BR>
Quarter of Year X</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>Royalty Interest/<BR>
Second DRC Payment</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>ISIS Royalty Interest/<BR>
First ISIS Payment</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="31%"><FONT SIZE=2>US$600,000,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>(I) 100% of all royalties payable on cumulative Net Sales for Year X at or below the First Threshold<BR>
<BR>
plus<BR>
<BR>
(II) 50% of all royalties payable on cumulative Net Sales for Year X above the First Threshold but at or below the Second Threshold<BR>
<BR>
less<BR>
<BR>
(III) the First DRC Payment<BR>
(i.e.: (100% &times;[***]% &times; US$500,000,000) + [50% &times;[***]% &times; (US$600,000,000 &#150; US$500,000,001)] &#150; US$[***] = </FONT><FONT SIZE=2><B>US$</B></FONT><FONT SIZE=2>[***])</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>50% of all royalties payable on cumulative Net Sales for Year X above the First Threshold<BR>
<BR>
(i.e.: 50% &times;[***]% &times;(US$600,000,000 &#150; US$500,000,001) = </FONT><FONT SIZE=2><B>US$</B></FONT><FONT SIZE=2>[***])</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>If
as of the expiry of the third calendar quarter of Year X cumulative Net Sales for Year X exceed the Second Threshold, all royalties payable for such calendar quarter shall be
calculated and paid as follows: (A)&nbsp;to DRC, the Royalty Interest, which shall equal (I)&nbsp;one </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kk1047_1_32"> </A>
<UL>
<UL>

<P><FONT SIZE=2>hundred
per cent (100%) of royalties payable on cumulative Net Sales for Year X at or below the First Threshold plus (II)&nbsp;fifty per cent (50%) of royalties payable on cumulative Net Sales for
Year X above the First Threshold but at or below the Second Threshold plus (III)&nbsp;ten cent (10%) of all royalties payable on cumulative Net Sales for Year X above the Second Threshold less
(IV)&nbsp;the total of the First DRC Payment and the Second DRC Payment; and (B)&nbsp;to ISIS, the ISIS Royalty Interest, which shall equal (i)&nbsp;fifty per cent (50%) of all royalties payable
on cumulative Net Sales for Year X above the First Threshold but at or below the Second Threshold plus (ii)&nbsp;ninety per cent (90%) of all royalties payable on cumulative Net Sales for Year X
above the Second Threshold less (iii)&nbsp;the First ISIS Payment. i.e.: </FONT></P>

</UL>
</UL>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="70%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>Cumulative Net Sales as of<BR>
Expiry of Third Calendar<BR>
Quarter of Year X</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>Royalty Interest</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="31%" ALIGN="CENTER"><FONT SIZE=1><B>ISIS Royalty Interest</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="31%"><FONT SIZE=2>US$1,100,000,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>(I) 100% of all royalties payable on cumulative Net Sales for Year X at or below the First Threshold<BR>
<BR>
plus<BR>
<BR>
(II) 50% of all royalties payable on cumulative Net Sales for Year X above the First Threshold but at or below the Second Threshold<BR>
<BR>
plus<BR>
<BR>
(III) 10% of all royalties payable on cumulative Net Sales for Year X above the Second Threshold<BR>
<BR>
less<BR>
<BR>
(IV) the total of the First DRC Payment and the Second DRC Payment<BR>
<BR>
(i.e.: (100% &times; [***]% &times; US$500,000,000) + [50% &times; [***]% &times; (US$1,000,000,000 &#150; US$500,000,001)] + [10% &times; [***]% &times; (US$1,100,000,000 &#150; US$1,000,000,001)] &#150; (US$[***] + US$[***] = </FONT><FONT
SIZE=2><B>US$</B></FONT><FONT SIZE=2>[***])</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%"><FONT SIZE=2>(i) 50% of all royalties payable on cumulative Net Sales for Year X above the First Threshold but at or below the Second Threshold<BR>
<BR>
plus<BR>
<BR>
(ii) 90% of all royalties payable on cumulative Net Sales for Year X above the Second Threshold<BR>
<BR>
less<BR>
<BR>
(iii) the First ISIS Payment<BR>
<BR>
(i.e.: [50% &times; [***]% &times; (US$1,000,000,000 &#150; US$500,000,001)] + [90% &times; [***]% &times; (US$1,100,000,000 &#150; US$1,000,000,001)] &#150; US$[***] = </FONT><FONT SIZE=2><B>US$</B></FONT><FONT SIZE=2>[***])</FONT></TD>
</TR>
</TABLE></DIV>
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<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kk1047_schedule__e__patents"> </A>
<A NAME="toc_kk1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE "E"<BR>  PATENTS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>[***] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>

<HR NOSHADE>
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<A NAME="page_kk1047_1_34"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kk1047_schedule__f_"> </A>
<A NAME="toc_kk1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE "F"    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>EXAMPLE TERMINATION EVENT RE-CONVEYANCE CALCULATION </FONT></P>

<P><FONT SIZE=2>Assuming
that (i)&nbsp;DRC has re-conveyed to ISIS the Assigned Rights as they relate to the EU (as a result of the occurrence of a Special Event of Default) (the
"</FONT><FONT SIZE=2><B>EU Re-conveyance</B></FONT><FONT SIZE=2>"); (ii)&nbsp;in connection with the EU Re-conveyance it is determined that the EU Percentage equals 42%;
(iii)&nbsp;a Termination Event occurs following the EU Re-conveyance and prior to the Third Payment Date and (iv)&nbsp;as a result of a dispute DRC is not required to pay the third
installment or any Damages on account thereof, then the portion of the Assigned Rights that are to be re-conveyed by DRC to ISIS would be calculated based on the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>the
Assigned Rights relate to the US only;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>the
Purchase Price for such Assigned Rights would equal US$13,920,000 (i.e. 58% of US24,000,000);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>DRC
would have paid $[***] for such Assigned Rights (i.e. $13,920,000 less US$[***] (i.e. 58% of $[***]));
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>the
corresponding portion of the Assigned Rights that DRC would have purchased would be equal to [***]% (i.e. $[***]divided by
$13,920,000); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>the
outstanding Purchase Price amount payable on the Third Payment Date for such Assigned Rights would be $[***] (i.e. 58% of $[***]). </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>In
this example, as at the Termination Event, DRC would therefore be required to re-convey [***]% (i.e. 100% less [***]%) of the Assigned
Rights that DRC held as at such date to ISIS. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

<HR NOSHADE>
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<P><br><A NAME="05SAN1045_3">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ke1047_1">AGREEMENT FOR SALE AND ASSIGNMENT OF RIGHTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ke1047_2">ARTICLE 1 ASSIGNMENT AND SALE</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ke1047_3">ARTICLE 2 REPRESENTATIONS AND WARRANTIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ke1047_4">ARTICLE 3 COVENANTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ke1047_5">ARTICLE 4 CLOSING; DELIVERIES ON CLOSING</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ke1047_6">ARTICLE 5.A SPECIAL EVENTS OF DEFAULT</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_kg1047_1">ARTICLE 5 TERM AND TERMINATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kg1047_2">ARTICLE 6 MUTUAL INDEMNITY</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kg1047_3">ARTICLE 7 MISCELLANEOUS</A></FONT><BR>

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<FONT SIZE=2><A HREF="#toc_ki1047_1">SCHEDULE "A" DEFINITIONS</A></FONT><BR>
<!-- TOC_BEGIN -->
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<FONT SIZE=2><A HREF="#toc_kk1047_2">SCHEDULE "E" PATENTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kk1047_3">SCHEDULE "F"</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.54
<SEQUENCE>4
<FILENAME>a2153640zex-10_54.htm
<DESCRIPTION>EXHIBIT 10.54
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2>
CONFIDENTIAL TREATMENT REQUESTED<BR>
UNDER 17 C.F.R. &sect;&sect; 200.80(b)4, AND 240.24 </FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.54  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="km1047_security_agreement"> </A>
<A NAME="toc_km1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>SECURITY AGREEMENT    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>THIS SECURITY AGREEMENT</B></FONT><FONT SIZE=2> (this "</FONT><FONT SIZE=2><B>Agreement</B></FONT><FONT SIZE=2>") is made and entered
into as of this 21&nbsp;day of December, 2004 by and between </FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.</B></FONT><FONT SIZE=2>, a subsisting corporation under the laws of the State
of Delaware ("</FONT><FONT SIZE=2><B>ISIS</B></FONT><FONT SIZE=2>"), and </FONT><FONT SIZE=2><B>DRUG ROYALTY USA,&nbsp;INC.</B></FONT><FONT SIZE=2>, a subsisting corporation under the laws of the
State of Nevada ("</FONT><FONT SIZE=2><B>DRC</B></FONT><FONT SIZE=2>"). </FONT></P>

<P><FONT SIZE=2><B>RECITALS:  </B></FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>A.</B></FONT></DT><DD><FONT SIZE=2>ISIS and DRC are parties to the Sale and Assignment Agreement.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>B.</B></FONT></DT><DD><FONT SIZE=2>ISIS has covenanted pursuant to the terms of the Sale and Assignment Agreement to enter into this Agreement, under which ISIS grants to
DRC a first priority security interest in and to the Collateral as general and continuing security for the due performance and payment of all of ISIS' obligations to DRC under the Sale and Assignment
Agreement. </FONT></DD></DL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE,</B></FONT><FONT SIZE=2> for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ISIS covenants, acknowledges,
represents and warrants to and in favor of DRC as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 1.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Definitions.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this Agreement, capitalized terms used herein shall have the meanings set forth in Schedule&nbsp;1 hereto. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 2.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Grant of Security.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS
hereby grants to DRC a continuing security interest in and lien on all right, title and interest of ISIS in and to the following personal property, whether now or hereinafter
existing, whether tangible or intangible and wherever the same may be located (collectively, the "</FONT><FONT SIZE=2><B>Collateral</B></FONT><FONT SIZE=2>"): </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;the
Patent Collateral; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;the
License Agreement, including, without limitation, (i)&nbsp;all rights of ISIS to receive moneys due or to become due under or pursuant to the License Agreement,
(ii)&nbsp;all rights of ISIS to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the License Agreement, (iii)&nbsp;all claims of ISIS for damages arising out of
any breach of or default under the License Agreement, and (iv)&nbsp;all rights of ISIS to terminate, amend, supplement, modify or exercise rights or options under the License Agreement, to perform
thereunder and to compel performance and otherwise exercise all remedies thereunder; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;if
any court or other tribunal of competent jurisdiction determines that the Assigned Rights or any of the payments with respect thereto are property of ISIS or its
bankruptcy estate, the Assigned Rights; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;all
proceeds, products, royalties, payments, property and license fees of or from any and all of the foregoing collateral (excluding, for greater certainty, the Royalty
Interest unless paragraph&nbsp;(c) above applies) and, to the extent not otherwise included, all payments under insurance (whether or not DRC is the loss payee thereof), or any indemnity, warranty
or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, excluding (i)&nbsp;all proceeds and other consideration arising under Permitted
Licenses of the Patent Collateral and (ii)&nbsp;the milestone payments pursuant to Sections 3.1.1 and 3.1.2 of the License Agreement. </FONT></P>

</UL>
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<UL>
<BR>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject
to the terms and conditions of this Agreement, in no event shall the granting of a security interest in the Collateral pursuant hereto be construed to limit or otherwise restrict
ISIS' ability to exploit (including through granting Permitted Licenses) the Patents and the Licensed Patent Rights for any purposes outside the Field. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
item of Collateral listed in this Section&nbsp;2 that is defined in Articles 8 or 9 of the UCC, shall have the meaning set forth in the UCC, it being the intention of ISIS that
the description of the Collateral set forth above be construed to include the broadest possible range of assets, except for assets expressly excluded as set forth in this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 3.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Security for Obligations.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement secures, and the Collateral charged by ISIS is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Subsection
362(a) of the Bankruptcy Code), of all Secured Obligations of ISIS. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 4.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>ISIS to Remain Liable.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anything
contained herein to the contrary notwithstanding, (a)&nbsp;ISIS shall remain liable under any contracts, licenses and agreements included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b)&nbsp;the exercise by DRC of any of its rights hereunder
shall not release ISIS from any of its
duties or obligations under the contracts, licenses and agreements included in the Collateral, and (c)&nbsp;DRC shall not have any obligation or liability under any contracts, licenses and
agreements included in the Collateral by reason of this Agreement, nor shall DRC be obligated to perform any of the obligations or duties of ISIS thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 5.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Representations and Warranties.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS
represents and warrants as follows: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Ownership of Collateral.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as expressly permitted by the Sale and Assignment Agreement and for the
security interest created by this Agreement, ISIS owns the Collateral free and clear of any lien. Except as expressly permitted by the Sale and Assignment Agreement and such as may have been filed in
favor of DRC relating to this Agreement, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Office Locations; Type and Jurisdiction of Organization.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The chief place of business, the chief executive
office and the office where ISIS keeps its records regarding the Collateral are, as of the date hereof, located at the locations set forth on Schedule&nbsp;5(b); ISIS' type of organization (i.e.
corporation, limited partnership, etc.), jurisdiction of organization and organization number provided by the applicable government authority of the jurisdiction of organization are listed on
Schedule&nbsp;5(b). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Names.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ISIS (or any predecessor by merger or otherwise) has not, within the four month period preceding the
date hereof, had a different name from the name listed on the signature pages hereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Patent Collateral.</B></FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;a
true and complete list of all patent applications and registered patents comprising the Licensed Patent Rights is set forth in Schedule&nbsp;5(d)(i); and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;the
representations and warranties made by ISIS pursuant to Subsection 2.1 (g)&nbsp;of the Sale and Assignment Agreement shall be deemed to be incorporated herein by
reference </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
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<UL>
<UL>
<BR>

<P><FONT SIZE=2>and
form part of this Agreement with all references therein to Schedule "E" changed to Schedule&nbsp;5(d)(i)&nbsp;and all other applicable changes as the context requires. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Perfection.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ISIS intends for the security interests in the Collateral granted to DRC hereunder to constitute
valid security interests in the Collateral, securing the payment of the Secured Obligations. Upon (i)&nbsp;the filing of UCC financing statements naming ISIS as "debtor", naming DRC as "secured
party" and describing the Collateral in the filing offices with respect to ISIS set forth on Schedule&nbsp;5(e), and (ii)&nbsp;in the case of the Patent Collateral, in addition to the filing of
such UCC financing statements, the filing of a grant of patent security interest, substantially in the form of Exhibit&nbsp;I annexed hereto, with a national Patent Office anywhere in the world,
including but not limited to, the United States Patent and Trademark Office (such Grant of Patent Security Interest being referred to herein as the
"</FONT><FONT SIZE=2><B>Grant</B></FONT><FONT SIZE=2>"), the security interests in the Collateral granted to DRC are intended by ISIS to constitute perfected security interests therein prior to all
other liens and security interests. Without limiting the generality of the foregoing, ISIS agrees that it shall not, and shall not assist or encourage any third party to, challenge or contest the
validity, attachment, perfection or priority of the security interests in the Collateral granted to DRC hereunder. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 6.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Further Assurances.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Generally.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;ISIS agrees that from time to time, at the expense of ISIS, ISIS will promptly execute and
deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that DRC may request, in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable DRC to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, ISIS
will: (i)&nbsp;(A) execute and file such financing or continuation statements, or amendments thereto, (B)&nbsp;execute and deliver, and cause to be executed and delivered, agreements establishing
that DRC has control of specified items of Collateral and (C)&nbsp;deliver such other instruments or notices, in each case, as may be necessary or desirable, or as DRC may request, in order to
perfect and preserve the security interests granted or purported to be granted hereby, (ii)&nbsp;furnish to DRC from time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as DRC may reasonably request, all in reasonable detail, (iii)&nbsp;at DRC's request, appear in and defend any action or
proceeding that may affect ISIS' title to or DRC's security interest in all or any part of the Collateral, and (iv)&nbsp;use commercially reasonable efforts to obtain any necessary consents of third
parties to the assignment and perfection of a security interest to DRC with respect to any Collateral. ISIS hereby authorizes DRC to file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the signature of ISIS. ISIS agrees that a carbon, photographic or other reproduction of this Agreement or of a financing
statement signed by ISIS shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Patent Collateral.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For the avoidance of doubt, if ISIS shall hereafter obtain rights to any reissue,
re-examination, division, continuation, renewal, extension, continuation-in-part or foreign counterpart of any Patent or any improvement of any Patent then in any
such case, the provisions of this Agreement shall automatically apply thereto. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 7.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Certain Covenants of ISIS.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS
shall: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;not
use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
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<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;notify
DRC of any change in its name, identity or corporate structure within fifteen (15)&nbsp;days of such change; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;give
DRC thirty (30)&nbsp;days' prior written notice of any change in its chief place of business, chief executive office or residence or the office where ISIS keeps
its records regarding the Collateral or a reincorporation, reorganization or other action that results in a change of the jurisdiction of organization of ISIS; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;pay
promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Collateral, except to the extent the validity
thereof is being contested in good faith; provided that ISIS shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5)&nbsp;days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment entered or filed against ISIS or any of the Collateral as a result of the failure to make such payment. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 8.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Special Covenants With Respect to the Collateral.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;ISIS
shall: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;diligently
keep reasonable records respecting the Collateral and at all times keep at least one complete set of its records concerning such Collateral at its chief
executive office or principal place of business; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;use
best efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way impair or
prevent the creation of a security interest in, or the assignment of, ISIS' rights and interests in any property included within the definition of Collateral, excluding Permitted Licenses of the
Patent Collateral so long as such licenses do not in any way impair the security interest created by this Agreement or DRC's rights in the Collateral in the Field. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Except
as otherwise provided in this Section&nbsp;8 and the Sale and Assignment Agreement (and subject to the payment of Royalties to [***]
pursuant to the Eyetech Consent), ISIS shall continue to collect, at its own expense, all amounts due or to become due to ISIS in respect of the Collateral or any portion thereof. In connection with
such collections, ISIS may take (and, after the occurrence and during the continuance of any Event of Default at DRC's reasonable direction, shall take) such action as ISIS or DRC may deem reasonably
necessary or advisable to enforce collection of such amounts; provided, DRC shall have the right at any time, upon the occurrence and during the continuation of an Event of Default and upon written
notice to ISIS of its intention to do so, to notify the obligors with respect to any such amounts of the existence of the security interest created hereby and to direct such obligors to make payment
of all such amounts directly to DRC, and, upon such notification and at the expense of ISIS, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as ISIS might have done. After receipt by ISIS of the notice from DRC referred to in the proviso to the preceding sentence and during the
continuation of any Event of Default, (i)&nbsp;all amounts and proceeds (including checks and other instruments) received by ISIS in respect of amounts due to ISIS in respect of the Collateral or
any portion thereof shall be received in trust for the benefit of DRC hereunder, shall be segregated from other funds of ISIS and shall be forthwith paid over or delivered to DRC in the same form as
so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section&nbsp;12 hereof, and (ii)&nbsp;ISIS shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;the
covenants made by ISIS pursuant to Sections 3.1, 3.2 and 3.5 of the Sale and Assignment Agreement shall be deemed to be incorporated herein by reference and form
part of this Agreement with all applicable changes as the context requires. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=4,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="4",CHK=867142,FOLIO='4',FILE='DISK048:[05SAN7.05SAN1047]KM1047A.;14',USER='ALOEW',CD='14-MAR-2005;21:40' -->
<A NAME="page_km1047_1_5"> </A>
<UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;ISIS
shall concurrently with the execution and delivery of this Agreement, execute and deliver to DRC five (5)&nbsp;originals of a Special Power of Attorney in the
form of Exhibit&nbsp;II annexed hereto for execution of an assignment of the Collateral to DRC, or the implementation of the sale or other
disposition of the Collateral pursuant to DRC's exercise of the rights and remedies granted hereunder; provided, however, DRC agrees that it will not exercise its rights under such Special Power of
Attorney unless an Event of Default has occurred and is continuing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;If
ISIS grants a Permitted License of the Patent Collateral, DRC shall enter into a non-disturbance agreement or other similar arrangement, at ISIS' request
and expense, with ISIS and any licensee of any Patent Collateral outside of the Field under a Permitted License in form and substance reasonably satisfactory to DRC pursuant to which (i)&nbsp;DRC
shall agree not to disturb or interfere with such licensee's rights under its license agreement with ISIS so long as such licensee is not in default thereunder, and (ii)&nbsp;such licensee shall
acknowledge and agree that the Patent Collateral licensed to it is subject to the security interest created in favor of DRC and the other terms of this Agreement and the enforcement by DRC of such
rights will not constitute a disturbance or interference of the licensee's rights under its Permitted License. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;ISIS
further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to DRC, that DRC has no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against ISIS, and ISIS hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their
stated maturities. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 9.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>DRC Appointed
Attorney-in-Fact.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS
hereby irrevocably appoints DRC, or any person or agent as DRC may designate, as ISIS' attorney-in-fact, with full authority in the place and stead of ISIS
and in the name of ISIS, DRC or otherwise, from time to time in DRC's discretion to take any action and to execute any instrument that DRC may in its sole discretion deem necessary or advisable to
accomplish the following: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;upon
the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts
for moneys due and to become due under or in respect of any of the Collateral; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;upon
the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in
connection with clause&nbsp;(a) above; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;upon
the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that DRC may in its sole
discretion deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights of DRC with respect to any of the Collateral; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;to
pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge
the same to be determined by DRC in its sole discretion, any such payments made by DRC to become obligations of ISIS to DRC, due and payable immediately without demand; </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;upon
the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, drafts against debtors, assignments, verifications, notices and
other documents relating to the Collateral; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;upon
and at any time after the occurrence and during the continuance of an Event of Default, to prepare, file and sign ISIS' name on an assignment document in the form
of Exhibit&nbsp;III annexed hereto (including without limitation Schedule&nbsp;A thereto) with such modifications thereto </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_6"> </A>
<UL>
<BR>

<P><FONT SIZE=2>as
DRC may in its sole discretion deem necessary or desirable to transfer ownership of the Collateral to DRC or an assignee or transferee of DRC. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 10.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Standard of Care.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
powers conferred on DRC hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the accounting for moneys actually received by DRC hereunder, DRC shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral. DRC shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which DRC accords its own property. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 11.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Remedies Upon Event of Default.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;If,
and only if, any Event of Default shall have occurred and be continuing, DRC may in good faith exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein, under the Sale and Assignment Agreement or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC
applies to the Collateral), in all relevant jurisdictions, and also may: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;require
ISIS to, and ISIS hereby agrees that it will at its expense and upon request of DRC forthwith, assemble all or part of the Collateral as directed by DRC and make
it available to DRC at a place to be designated by DRC that is reasonably convenient to both parties, and </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;personally
or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from ISIS or any other person who has possession of any part
thereof, with or without notice or process of law, and for that purpose may enter upon ISIS' premises where any of the Collateral is located and remove same. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;On
Closing, DRC shall grant to ISIS a sole and exclusive, royalty-free, perpetual, right and license, with the right to sublicense, world-wide,
to exploit the Patent Collateral outside the Field in the form of Exhibit&nbsp;IV annexed hereto, such grant to take effect upon any assignment to DRC or a transferee or assignee of DRC of any
rights, title and interests in and to the Patent Collateral pursuant to the provisions hereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;Anything
contained herein to the contrary notwithstanding (subject to Subsection (d)), upon the occurrence and during the continuation of an Event of Default, DRC shall
have the right (but not the obligation) to bring suit, in the name of ISIS, DRC or otherwise, to enforce any Patent Collateral, in which event ISIS shall, at the request of DRC, do any and all lawful
acts and execute any and all documents required by DRC in aid of such enforcement and ISIS shall promptly, upon demand, reimburse and indemnify DRC as provided in the Sale and Assignment Agreement and
Section&nbsp;13 hereof, as applicable, in connection with the exercise of its rights under this Section. Without limiting the generality of the foregoing, upon the occurrence and during the
continuation of an Event of Default, DRC and any assignee or transferee of the Patent Collateral shall have the right to grant license(s) to any or all of the Patent Collateral within the Field. If
DRC or any assignee or transferee of the Patent Collateral grants any such license(s), ISIS shall enter into a non-disturbance agreement or other similar arrangement, at DRC's or such
assignee's or transferee's request and expense, with DRC or such assignee or transferee and any licensee of any or all of the Patent Collateral within the Field in form and substance reasonably
satisfactory to DRC or such assignee or transferee pursuant to which ISIS shall agree not to disturb or interfere with such licensee's rights under its license agreement with DRC or such assignee or
transferee so long as such licensee is not in default thereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;Notwithstanding
any other term or condition of this Agreement, DRC acknowledges and agrees that if an Event of Default qualifies as a Special Event of Default, DRC shall
only exercise </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_7"> </A>
<UL>
<BR>

<P><FONT SIZE=2>its
rights under this Agreement if ISIS fails to pay to DRC the Liquidated Damages Amount in accordance with Article&nbsp;5.A of the Sale and Assignment Agreement, including without limitation the
amount under Subsection 5.A.2(b) or (c), as applicable. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 12.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Application of Proceeds.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as expressly provided elsewhere in this Agreement, all proceeds received by DRC in respect of any sale of, collection from, or other realization upon all or any part of the
Collateral (collectively, "</FONT><FONT SIZE=2><B>Proceeds</B></FONT><FONT SIZE=2>") shall be applied to satisfy (to the extent of the net proceeds received by DRC) such item or part of the Secured
Obligations (including, but not limited to any Damages) as DRC may designate (with the right to reapply such proceeds to such other items or part of the Secured Obligations). Once the Proceeds have
satisfied the Secured Obligations, DRC will return to ISIS any Proceeds in excess of the amount required to satisfy the Secured Obligations, whether such excess Proceeds are then held or later
received by DRC. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 13.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Reimbursement of Expenses.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;ISIS
agrees to pay to DRC upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and
agents, that DRC may incur in connection with (i)&nbsp;the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral,
(ii)&nbsp;the exercise or enforcement of any of the rights of DRC hereunder, or (iii)&nbsp;the failure by ISIS to perform or observe any of the provisions hereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;The
obligations of ISIS in this Section&nbsp;13 shall (i)&nbsp;survive the termination of this Agreement and the discharge of ISIS' other obligations under this
Agreement and the Sale and Assignment Agreement. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 14.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Calculation of Damages.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Calculation of Damages.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Whenever DRC exercises its rights under Section&nbsp;11 (an
"</FONT><FONT SIZE=2><B>Enforcement</B></FONT><FONT SIZE=2>"), DRC will deliver to ISIS a reasonably detailed statement of the basis for such Enforcement and DRC's commercially reasonable calculation
of its Damages (an "</FONT><FONT SIZE=2><B>Enforcement Notice</B></FONT><FONT SIZE=2>"). Within sixty (60)&nbsp;calendar days after the delivery by DRC of an Enforcement Notice, ISIS may deliver to
DRC a written notice (a "</FONT><FONT SIZE=2><B>Dispute Notice</B></FONT><FONT SIZE=2>") of any objection to the calculation of Damages contained therein, which Dispute Notice will contain a
reasonably detailed statement of the basis of such objection and ISIS' calculation of the Damages. If a Dispute Notice is not delivered within such 60-calendar day period, the calculations
of Damages contained in the Enforcement Notice will become final and binding upon the parties to this Agreement </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>No Dispute.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If ISIS timely delivers a Dispute Notice to DRC, DRC may deliver to ISIS a written response (the
"</FONT><FONT SIZE=2><B>Dispute Response</B></FONT><FONT SIZE=2>") within thirty (30)&nbsp;calendar days in which DRC will either agree with the calculation of Damages contained in the Dispute
Notice or dispute such calculation. If the Dispute Response is not delivered within such 30-calendar day period, the calculation of Damages contained in the Dispute Notice will become
final and binding upon the parties to this
Agreement. In such instance, or in the event DRC delivers a Dispute Response in which DRC agrees with the calculation of Damages contained in the Dispute Notice, then the calculation of Damages
contained in the Dispute Notice will become final and binding upon the parties to this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Dispute.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the event that DRC and ISIS are unable to resolve all disagreements relating to a Dispute Notice
and Dispute Response within twenty (20)&nbsp;calendar days following delivery of the Dispute Response, then either party shall be entitled to submit such dispute to a court of competent jurisdiction
for resolution. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Enforcement Not Affected.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;For avoidance of doubt, the provisions of this Section&nbsp;14 are intended to
govern the determination of Damages but shall in no way delay, limit, restrict, </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_8"> </A>
<UL>
<BR>

<P><FONT SIZE=2>prejudice,
alter or affect DRC's rights and remedies including without limitation its right to enforce in good faith the security interest and lien granted herein and realize in a commercially
reasonable manner upon all or any part of the Collateral. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 15.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Continuing Security Interest; Termination and
Release.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;This
Agreement shall create a continuing security interest in the Collateral and shall (i)&nbsp;remain in full force and effect until the payment in full of the
Secured Obligations, (ii)&nbsp;be binding upon ISIS and its respective successors and assigns, and (iii)&nbsp;inure, together with the rights and remedies of DRC hereunder, to the benefit of DRC
and its successors, transferees and assigns. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;As
contemplated by Subsection 5.A.2(a) of the Sale and Assignment Agreement and/or upon written confirmation by DRC to ISIS of the payment and performance in full of all
Secured Obligations, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to ISIS. Upon any such termination DRC will, at ISIS' expense, execute and
deliver to ISIS such documents as ISIS shall reasonably request to evidence such termination. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 16.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Amendments; Etc.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by ISIS therefrom, shall in any event be effective unless the same
shall be in writing and signed by DRC and, in the case of any such amendment or modification, by ISIS. Any such waiver or consent shall be effective only in the specific instance and for the specific
purpose for which it was given. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 17.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Notices.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
notices, consents, waivers and other communications hereunder shall be in writing and shall be delivered in person, sent by overnight courier, facsimile transmission or posted by
registered or certified mail, return receipt requested, with postage prepaid, addressed to the address of DRC or ISIS, as applicable, provided in Section&nbsp;7.3 of the Sale and Assignment
Agreement or to such other address or addresses as DRC or ISIS may from time to time designate by notice as provided herein. Any such notice shall be deemed given when actually received when so
delivered personally or by overnight courier or if mailed, other than during a period of general discontinuance or disruption of postal service due to strike, lockout or otherwise, on the fifth
(5<SUP>th</SUP>) day after its postmarked date thereof or if sent by facsimile transmission on the date sent if such day is a business day or the next following business day if such day is not a
business day. For the purposes of this Agreement, "business day" means any day other than Saturday, Sunday or a statutory or civic holiday observed in Toronto, Ontario or Carlsbad, California. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 18.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Failure or Indulgence Not Waiver; Remedies
Cumulative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No
failure or delay on the part of DRC in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or
privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 19.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Severability.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a court deems any part of this Agreement unenforceable, the parties agree that only the offending part shall be stricken and that the remaining parts shall be unaffected. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 20.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Headings.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section
and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be
given any substantive effect. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_9"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 21.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Governing Law; Terms; Rules of Construction.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE
UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. Unless otherwise defined herein or in the Sale and Assignment Agreement, terms used in Articles 8 and 9 of the UCC are used herein as therein defined. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 22.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Consent to Jurisdiction and Service of Process.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ISIS ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, ISIS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I)&nbsp;ACCEPTS GENERALLY AND
UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II)&nbsp;WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III)&nbsp;AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING
IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ISIS AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 16; (IV)&nbsp;AGREES THAT SERVICE AS PROVIDED IN
CLAUSE (III)&nbsp;ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER ISIS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V)&nbsp;AGREES THAT DRC RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ISIS IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI)&nbsp;AGREES
THAT THE PROVISIONS OF THIS SECTION 21 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION
5-1402 OR OTHERWISE. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_10"> </A>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 23.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Waiver of Jury Trial.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISIS
AND DRC HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is
intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims. ISIS and DRC acknowledge that this waiver is a material inducement for ISIS and DRC to enter into a business relationship,
that ISIS and DRC have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. ISIS and DRC further warrant
and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 22 AND EXECUTED BY EACH OF THE PARTIES
HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 24.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Counterparts.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement may be executed in any number of counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same
instrument, and shall become binding when one or more counterparts have been signed by each party hereto and delivered to each other party hereto. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>SECTION 25.</B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B><I>Successors and Assigns.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of ISIS and DRC. This Agreement may not be assigned in whole or in part by
either party without the prior written consent of the other party; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2> that (i)&nbsp;DRC may assign this Agreement in whole or in part
by way of [***] and/or to [***] and/or as part of a sale of a material part of DRC whether by way of reorganization or otherwise, without the consent of
ISIS provided DRC gives prompt written notice of such assignment to ISIS and the assignee (or in the case of any financial institution or other lender, any purchaser from such financial institution or
other lender) agrees in writing to be bound hereby and (ii)&nbsp;ISIS may assign this Agreement in connection with the sale of all or substantially all of its business (whether by sale of assets,
stock or merger) without the consent of DRC provided ISIS gives prompt written notice of such assignment to DRC and the assignee agrees in writing to be bound hereby. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_km1047_1_11"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2>, ISIS and DRC have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=4><FONT SIZE=2><B>ISIS PHARMACEUTICALS&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>B. Lynne Parshall</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Executive Vice President, CFO and Director</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD COLSPAN=4><BR><FONT SIZE=2><B>DRUG ROYALTY USA,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BEHZAD KHOSROWSHAHI</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>Behzad Khosrowshahi</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="38%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2>President</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_ko1047_1_12"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ko1047_schedule_1_to_security_agreement"> </A>
<A NAME="toc_ko1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE 1 TO<BR>  SECURITY AGREEMENT    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>DEFINITIONS  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized terms used in this Agreement and not defined in this Schedule&nbsp;1 shall have the meanings attributed thereto in the Sale and Assignment
Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Agreement"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Collateral"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;2 of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"DRC"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Grant"</B></FONT><FONT SIZE=2> has the meaning set forth in Subsection 5(f) of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"ISIS"</B></FONT><FONT SIZE=2> has the meaning set forth on the cover page of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"License Agreement"</B></FONT><FONT SIZE=2> means that certain License Agreement effective as of December&nbsp;31, 2001 pursuant to which ISIS granted to
Eyetech a non-exclusive license under the Licensed Patent Rights to make, have made, use and sell EYE001 (for greater certainty, the Product) world-wide, with the right to
sublicense, as such agreement relates to the ISIS Rights but not the Assigned Rights and as such agreement may be amended, restated, supplemented or otherwise modified from time to time. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Major Market</B></FONT><FONT SIZE=2>" means [***], any [***] country, [***] or the
[***]. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>obligations</B></FONT><FONT SIZE=2>" means indebtedness, obligations, promises, covenants, responsibilities, duties and liabilities (actual or contingent, direct
or indirect, matured or unmatured, now existing or arising hereafter), whether arising by agreement or statute, at law, in equity or otherwise, and "obliged", "obligation" and "obligated" shall have
corresponding meanings. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Patent Collateral"</B></FONT><FONT SIZE=2> means all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to the
Patents, including, without limitation, the [***] Patents, as the same may be amended from time to time, all rights corresponding thereto (including, without limitation, ISIS'
rights under the [***] License and the right, exercisable only upon the occurrence and during the continuation of an Event of Default, to sue for past, present and future
infringements in the name of ISIS or in the name of DRC), and all re-issues, re-examinations, divisions, continuations, renewals, extensions,
continuations-in-part and foreign counterparts thereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"proceeds"</B></FONT><FONT SIZE=2> includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed
of, whether such disposition is voluntary or involuntary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Sale and Assignment Agreement"</B></FONT><FONT SIZE=2> means the Agreement for Sale and Assignment of Rights between ISIS and DRC dated as of December&nbsp;21,
2004, as such agreement may be amended, restated, supplemented or otherwise modified from time to time, pursuant to which ISIS has agreed to sell, assign, transfer, set-over and convey to
DRC the Assigned Rights in consideration of the payment by DRC to ISIS of the Purchase Price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Secured Obligations</B></FONT><FONT SIZE=2>" means all obligations and liabilities of every nature of ISIS now or hereafter existing under or arising out of or
in connection with the Sale and Assignment Agreement, whether for damages, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to ISIS,
would accrue on such obligations, whether or not a claim is allowed against ISIS for such interest in the related bankruptcy proceeding), reimbursement of fees, expenses, indemnities or otherwise,
whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ko1047_1_13"> </A>
<BR>

<P><FONT SIZE=2>recovered
directly or indirectly from DRC as a preference, fraudulent transfer or otherwise, and all obligations of every nature of ISIS now or hereafter existing under this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"UCC"</B></FONT><FONT SIZE=2> means Uniform Commercial Code, as it exists on the date of this Agreement or as it may hereafter be amended, in the State of New
York. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ko1047_1_14"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><B>SCHEDULE 5(b)<BR>
TO<BR>
SECURITY AGREEMENT  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B><U>Office Locations, Type and Jurisdiction of Organization</U>  </B></FONT></P>

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<TABLE WIDTH="89%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="37%" ALIGN="LEFT"><FONT SIZE=1><B>Name<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Type of<BR>
Organization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Office Locations</B></FONT><HR NOSHADE></TH>
<TH WIDTH="9%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="15%" ALIGN="CENTER"><FONT SIZE=1><B>Jurisdiction<BR>
of Organization</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="11%" ALIGN="CENTER"><FONT SIZE=1><B>Organization<BR>
Number</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="37%"><FONT SIZE=2>ISIS Pharmaceuticals Inc.</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>Corporation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%"><FONT SIZE=2>Delaware</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ko1047_1_15"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ko1047_schedule_5(d)(i)_to_security_agreement"> </A>
<A NAME="toc_ko1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE 5(d)(i)<BR>  TO<BR>  SECURITY AGREEMENT    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>[***] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ko1047_1_16"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><B>SCHEDULE 5(e)<BR>
TO<BR>
SECURITY AGREEMENT  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B><U>Filing Offices</U>  </B></FONT></P>

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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="49%" ALIGN="LEFT"><FONT SIZE=1><B>Grantor<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="49%" ALIGN="CENTER"><FONT SIZE=1><B>Filing Offices</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>ISIS Pharmaceuticals Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>(a) Secretary of State for the State of Delaware</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>(b) Secretary of State for the State of California</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="page_kq1047_1_17"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="RIGHT"><FONT SIZE=2><B>EXHIBIT I TO<BR>
SECURITY AGREEMENT  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kq1047_[form_of_grant_of_patent_security_interest]"> </A>
<A NAME="toc_kq1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>[FORM OF GRANT OF PATENT SECURITY INTEREST]    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kq1047_grant_of_patent_security_interest"> </A>
<A NAME="toc_kq1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>GRANT OF PATENT SECURITY INTEREST    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>WHEREAS, ISIS PHARMACEUTICALS,&nbsp;INC.,</B></FONT><FONT SIZE=2> a Delaware corporation (the "Grantor"), has entered into a security agreement dated December&nbsp;21,
2004, (said security agreement, as it may hereinafter be amended, restated, supplemented or otherwise modified from time to time, being the "Security Agreement") between the Grantor and DRC Royalty
USA&nbsp;Inc., a Nevada Corporation ("DRC") pursuant which the Grantor has granted to DRC certain security as general and continuing security for the due payment and performance of all of the
Grantor's obligations to DRC under that certain sale and assignment agreement between the Grantor and DRC dated December&nbsp;21, 2004. All capitalized terms not defined herein have the meanings
attributed thereto in the Security Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE</B></FONT><FONT SIZE=2>, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and
conditions of the Security Agreement, the Grantor hereby grants to DRC a security interest in all of the Grantor's right, title and interest in and to the following, in each case whether now or
hereafter existing or in which the Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Patent Collateral"): </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>all
right, title and interest (including rights acquired pursuant to a license or otherwise) in and to the patents listed on Schedule&nbsp;A-1 attached hereto
("Patents"), as the same may be amended from time to time, all rights corresponding thereto (including, without limitation, Debtor's rights under the [***] license and the
right, exercisable only upon the occurrence and during the continuation of an event of default, to sue for past, present and future infringements in the name of Debtor or in the name of Secured
Party), and all re-issues, re-examinations, divisions, continuations, renewals, extensions, continuations-in-part and foreign counterparts thereof; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>all
proceeds, products, royalties, payments, property and license fees of or from any and all of the foregoing collateral and, to the extent not otherwise included, all payments under
insurance (whether or not Secured Party is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing
collateral, excluding (i)&nbsp;all proceeds and other consideration arising under permitted licenses of the Patent Collateral and (ii)&nbsp;the milestone payments pursuant to Sections 3.1.1 and
3.1.2 of the License Agreement. </FONT></DD></DL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Grantor does hereby further acknowledge and affirm that the rights and remedies of DRC with respect to the security interest in the Patent Collateral granted hereby are more fully
set forth in the Security Agreement dated December&nbsp;21, 2004 between the Grantor and DRC, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=17,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="4",CHK=475689,FOLIO='17',FILE='DISK048:[05SAN7.05SAN1047]KQ1047A.;17',USER='EWILLIA',CD='15-MAR-2005;21:10' -->
<A NAME="page_kq1047_1_18"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>IN WITNESS WHEREOF</B></FONT><FONT SIZE=2>, the Grantor has caused this Grant of Patent Security Interest to be duly executed and delivered by its officer
thereunto duly authorized as of the 21st day of December, 2004. </FONT></P>

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<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Signature</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Name (printed)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="47%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Title</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kq1047_1_19"> </A>

<P><FONT SIZE=2><B>SCHEDULE A-1  </B></FONT></P>


<P><FONT SIZE=2>[***] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=19,EFW="2153640",CP="ISIS PHARMACEUTICALS, INC.",DN="4",CHK=257085,FOLIO='19',FILE='DISK048:[05SAN7.05SAN1047]KQ1047A.;17',USER='EWILLIA',CD='15-MAR-2005;21:10' -->
<A NAME="page_kq1047_1_20"> </A>
<P ALIGN="RIGHT"><FONT SIZE=2><B>EXHIBIT II TO<BR>
SECURITY AGREEMENT  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>SPECIAL POWER OF ATTORNEY  </B></FONT></P>

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<TABLE WIDTH="81%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>STATE OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>ss.:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>COUNTRY OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>KNOW
ALL MEN BY THESE PRESENTS, that </FONT><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.,</B></FONT><FONT SIZE=2> a Delaware corporation
("</FONT><FONT SIZE=2><B>Grantor</B></FONT><FONT SIZE=2>"), hereby appoints and constitutes DRUG ROYALTY USA,&nbsp;INC., a Nevada corporation
("</FONT><FONT SIZE=2><B>DRC</B></FONT><FONT SIZE=2>"), and each of its officers, or any person or agent as DRC may direct, its true and lawful attorney, with full power of substitution and with full
power and authority in the place and stead of Grantor, and in the name of Grantor, DRC or otherwise, from time to time in DRC's discretion to take any action and to execute any instrument that DRC
may, in its sole discretion, deem necessary or advisable to accomplish the following: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>to
ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the </FONT> <FONT SIZE=2><B>"Collateral"</B></FONT><FONT SIZE=2> (as such term is defined
in the security agreement referred to below);
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>to
receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause&nbsp;(a) above;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD><FONT SIZE=2>to
file any claims or take any action or institute any proceedings that DRC may in its sole discretion deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of DRC with respect to any of the Collateral;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(d)</FONT></DT><DD><FONT SIZE=2>to
pay or discharge taxes or liens levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be
determined by DRC in its sole discretion, any such payments made by DRC to become obligations of ISIS to DRC, due and payable immediately without demand;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(e)</FONT></DT><DD><FONT SIZE=2>to
sign and endorse any invoices, drafts against debtors, assignments, verifications, notices and other documents relating to the Collateral; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(f)</FONT></DT><DD><FONT SIZE=2>to
prepare, file and sign ISIS' name on an assignment document in the form of Exhibit&nbsp;III annexed the security agreement referred to below (including without limitation
Schedule&nbsp;A thereto) with such modifications thereto as DRC may in its sole discretion deem necessary or desirable to transfer ownership of the Collateral to DRC or an assignee or transferee of
DRC. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>This
Power of Attorney is made pursuant to a security agreement dated December&nbsp;21, 2004 between Grantor and DRC (the "</FONT><FONT SIZE=2><B>Security Agreement</B></FONT><FONT SIZE=2>") and is
subject to the terms and provisions thereof. This Power of Attorney, being coupled with an interest, is irrevocable until all "</FONT><FONT SIZE=2><B>Secured Obligations</B></FONT><FONT SIZE=2>", as
such term is defined in the Security Agreement, are indefeasibly paid in full and the Security Agreement is terminated in writing by DRC. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kq1047_1_21"> </A>
<BR>

<P><FONT SIZE=2>Date:
&lt;*&gt; </FONT></P>

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<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3><FONT SIZE=2><B>ISIS PHARMACEUTICALS, INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="51%"><BR><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="51%"><FONT SIZE=2>Name:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="51%"><FONT SIZE=2>Title:</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<BR>

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<TABLE WIDTH="81%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>STATE OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>ss.:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>COUNTRY OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>On
this&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;day of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, before me personally
came&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, to me known, who being duly sworn, did depose and say, that he is
the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of </FONT> <FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.</B></FONT><FONT SIZE=2>, the corporation
described in and which executed the foregoing instrument. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><HR NOSHADE><FONT SIZE=2> Notary Public</FONT></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kq1047_1_22"> </A>
<P ALIGN="RIGHT"><FONT SIZE=2><B>EXHIBIT III TO<BR>
SECURITY AGREEMENT  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kq1047_assignment_of_patents"> </A>
<A NAME="toc_kq1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>ASSIGNMENT OF PATENTS    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B>THIS ASSIGNMENT AGREEMENT</B></FONT><FONT SIZE=2> ("</FONT><FONT SIZE=2><B>Assignment</B></FONT><FONT SIZE=2>") entered into this &lt;*&gt; day of &lt;month*&gt;,
&lt;year*&gt;. </FONT><FONT SIZE=2><B>[NTD: to be executed only upon the occurrence and continuance of an Event of Default</B></FONT><FONT SIZE=2>] </FONT></P>


<P><FONT SIZE=2><B>B E T W E E N:  </B></FONT></P>

<UL>
<UL>
<UL>

<P><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>&lt;insert address current as at date of execution*&gt;<BR>
<BR>
(hereinafter referred to as the "</FONT><FONT SIZE=2><B>Assignor</B></FONT><FONT SIZE=2>") </FONT></P>

</UL>
</UL>
</UL>

<P><FONT SIZE=2><B>-and-</B></FONT></P>

<UL>
<UL>
<UL>

<P><FONT SIZE=2><B>[DRUG ROYALTY USA,&nbsp;INC. or a transferee or assignee of DRUG<BR>
ROYALTY USA,&nbsp;INC.]<BR>  </B></FONT><FONT SIZE=2>&lt;insert address current as at date of execution*&gt;<BR>
<BR>
(hereinafter referred to as the "</FONT><FONT SIZE=2><B>Assignee</B></FONT><FONT SIZE=2>") </FONT></P>

</UL>
</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS,</B></FONT><FONT SIZE=2> Assignor desires to assign, and Assignee desires to acquire, Assignor's entire, right, title and interest in and to the
(i)&nbsp;patent applications; and (ii)&nbsp;patents, filed and/or issued on such dates, under such application, serial or grant numbers, and in such countries as described in the attached Schedule
"A" (collectively the "</FONT><FONT SIZE=2><B>Patents</B></FONT><FONT SIZE=2>"). </FONT></P>

<P><FONT SIZE=2><B>NOW THEREFORE,</B></FONT><FONT SIZE=2> for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: </FONT></P>

<P><FONT SIZE=2>Assignor
does hereby sell, assign and transfer to Assignee, Assignor's whole right, title and interest to: (i)&nbsp;the Patents, any foreign applications or issued patents corresponding thereto, any
divisionals, continuations, continuations-in-part, re-examinations, reissues, renewals and extensions thereof, whether presently pending or filed in the future; and
(ii)&nbsp;all causes of action (either in law or equity) and the right to sue, counterclaim, and recover for past, present and future infringement of the rights assigned to Assignee; the same to be
held and enjoyed by Assignee as fully and exclusively as they would have been by the Assignor had this sale, assignment and transfer not been made </FONT></P>

<P><FONT SIZE=2>Assignor
further represents and agrees with Assignee, its successors and assigns, that it will from time to time and at all times hereafter, upon every reasonable request of Assignee, its successors
and assigns, make, do and execute or cause and procure to be made, done and executed all further acts, deeds or assurances as may be reasonably required by Assignee, its successors and assigns, for
more effectually and completely vesting in Assignee, its successors and assigns the Patents hereby assigned in accordance with the terms hereof. </FONT></P>

<P><FONT SIZE=2>This
Assignment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed
to be an original, and all of which counterparts, taken together, shall constitute but one and the same Assignment. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kq1047_1_23"> </A>
<BR>

<P><FONT SIZE=2><B>IN WITNESS WHEREOF,</B></FONT><FONT SIZE=2> the parties have executed and delivered this Assignment as of the date first written above. </FONT></P>

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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2><B>ISIS PHARMACEUTICALS, INC.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2><FONT SIZE=2><B>[DRUG ROYALTY USA,<BR>
INC./TRANSFEREE/ASSIGNEE]</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Name:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Name:</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Title:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="44%"><FONT SIZE=2>Title:</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="81%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>STATE OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>ss.:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>COUNTRY OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>On
this&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;day of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, before me personally came&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, to me
known, who being duly sworn, did depose and say, that he is the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of </FONT> <FONT SIZE=2><B>ISIS
PHARMACEUTICALS,&nbsp;INC.</B></FONT><FONT SIZE=2>, the corporation described in and which executed the foregoing instrument. </FONT></P>

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<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><HR NOSHADE><FONT SIZE=2> Notary Public</FONT></TD>
</TR>
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<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>STATE OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>ss.:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="19%"><FONT SIZE=2>COUNTRY OF</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="4%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="34%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P><FONT SIZE=2>On
this&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;day of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, before me personally came&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, to me
known, who being duly sworn, did depose and say, that he is the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of </FONT> <FONT SIZE=2><B>[DRUG ROYALTY
USA,&nbsp;INC./TRANSFEREE/ASSIGNEE]</B></FONT><FONT SIZE=2>, the corporation described in and which executed the foregoing instrument. </FONT></P>

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<TD WIDTH="50%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="50%"><HR NOSHADE><FONT SIZE=2> Notary Public</FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_kq1047_1_24"> </A>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kq1047_schedule_a_patents"> </A>
<A NAME="toc_kq1047_4"> </A>
<BR></FONT><FONT SIZE=2><B>SCHEDULE A<BR>  PATENTS    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>[***] </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<BR>
<P><br><A NAME="05SAN1045_4">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_km1047_1">SECURITY AGREEMENT</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ko1047_1">SCHEDULE 1 TO SECURITY AGREEMENT</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ko1047_2">SCHEDULE 5(d)(i) TO SECURITY AGREEMENT</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_kq1047_1">[FORM OF GRANT OF PATENT SECURITY INTEREST]</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kq1047_2">GRANT OF PATENT SECURITY INTEREST</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kq1047_3">ASSIGNMENT OF PATENTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_kq1047_4">SCHEDULE A PATENTS</A></FONT><BR>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.55
<SEQUENCE>5
<FILENAME>a2153640zex-10_55.htm
<DESCRIPTION>EXHIBIT 10.55
<TEXT>
<HTML>
<HEAD>
</HEAD>
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<FONT SIZE=3 ><A HREF="#05SAN1045_5">QuickLinks</A></FONT>
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<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.55  </B></FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2>Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>Date:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="la1047_isis_pharmaceuticals,_inc._sup__isi02445"> </A>
<A NAME="toc_la1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>Isis Pharmaceuticals,&nbsp;Inc.<BR>  Supplemental Stock Option Agreement    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis Pharmaceuticals,&nbsp;Inc. (the "Company"), pursuant to its 1989 Stock Option Plan (the "Plan") has this day granted to the undersigned optionee, an option
to purchase shares of the common stock of the Company ("Common Stock") as described herein. This option is not intended to qualify and will not be treated as an "incentive stock option" within the
meaning of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). This option is subject to all of the terms and conditions as set forth herein and on
Attachment&nbsp;I hereto, which is incorporated herein in its entirety. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" ALIGN="CENTER"><FONT SIZE=2>Number&nbsp;of&nbsp;Shares&nbsp;Subject&nbsp;to&nbsp;Option:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="30%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><B>Vesting Schedule:  </B></FONT></P>

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<DIV ALIGN="CENTER"><TABLE WIDTH="63%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares (installment)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Date of Earliest Exercise (vesting)(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<TR VALIGN="TOP">
<TD WIDTH="26%"><FONT SIZE=2><BR>
Exercise&nbsp;Price&nbsp;Per&nbsp;Share:(2)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT"><FONT SIZE=2><BR>
Expiration&nbsp;Date:(3)</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="RIGHT"><FONT SIZE=2>Percentage of Full-Time Work:</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%</FONT><HR NOSHADE></TD>
</TR>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>After
the first year, the option will vest monthly with 2.08% of the total grant vesting each month; provided, however, that during any period in which the undersigned provides
service at less than the Percentage of Full-Time Work set forth above, a reduced number of shares will vest as follows: the percentage of shares which will vest during such period of
reduced service will equal (a)&nbsp;the percentage of shares that would vest as set forth on this schedule, multiplied by (b)&nbsp;the percentage of full-time work furnished during the
period of reduced service divided by the Percentage of Full Time Work as set forth above. Increases of work percentage up to but not in excess of the Percentage of Full Time Work specified above will
result in a corresponding increase in the percentage of shares vesting. This reduction in vesting will not apply during any period of paid leave or the first 20 weeks of a period of unpaid leave. No
shares will vest during unpaid leave after the first 20&nbsp;weeks of such leave. Shares which do not vest because of reductions in work percentage or unpaid leave will be canceled and no longer
subject to this option.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Not
less than 85% of the fair market value of the Common Stock on the date of grant of this option.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Less
than 7&nbsp;years from the date of grant of this option. </FONT></DD></DL>
<BR>

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<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2>Isis Pharmaceuticals,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="42%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2><BR>
Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="42%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2>Duly authorized on behalf of<BR>
&nbsp;&nbsp;&nbsp;&nbsp;the Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>Address:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><B>Optionee:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acknowledges receipt of the option as described herein and the attachments referenced therein and understands that all rights and liabilities with respect to this
option are set forth in the option and the
Plan; and acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the optionee and the Company regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject. </FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2>ATTACHMENT I<BR>
TERMS OF SUPPLEMENTAL STOCK OPTION </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or
consultants and is intended to comply with the provisions of Rule&nbsp;701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
details of your option are as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total number of shares of Common Stock subject to this option is set forth on the first page of the Supplemental Stock Option Agreement. Subject to the limitations
contained herein, this option shall be exercisable with respect to each installment indicated in the Vesting Schedule set forth on the first page of the Supplemental Stock Option Agreement on or after
the date of vesting applicable to such installment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The
Exercise Price of this option is set forth on the first page of the Supplemental Stock Option Agreement. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Payment
of the exercise price per share is due in full in cash (including check) upon exercise of all or any part of each installment which has become exercisable by
you. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
minimum number of shares with respect to which this option may be exercised at any one time is 1,000, unless the number of shares available for exercise (that is, the
remaining vested shares pursuant to paragraph&nbsp;1) equals less than 1,000 shares, in which case the minimum number of shares exercised must equal the number of shares then vested. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered
under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on the Expiration Date. This option shall
terminate prior to the expiration of its term as follows: 3&nbsp;months after the termination of your employment with the Company or an affiliate of the Company (as defined in the Plan) for any
reason or for no reason unless: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;such
termination of employment is due to your permanent and total disability (within the meaning of Section&nbsp;422(c)(6) of the Code), in which event the option
shall terminate on the earlier of the termination date set forth above or 1&nbsp;year following such termination of employment; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;such
termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or 18&nbsp;months
after your death; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;(i)&nbsp;such
termination of employment is due to your retirement; </FONT><FONT SIZE=2><I>and</I></FONT><FONT SIZE=2> (ii)&nbsp;you were over the age of 55 at the
time of such retirement; </FONT><FONT SIZE=2><I>and</I></FONT><FONT SIZE=2> (iii)&nbsp;you had been an employee, director or consultant (or any combination thereof) of the Company for a continuous
and uninterrupted period of at least 5&nbsp;years prior to such retirement, in which event (</FONT><FONT SIZE=2><I>i.e</I></FONT><FONT SIZE=2> having satisfied all of the conditions set forth in
clauses&nbsp;(i) through (iii) above) the option shall terminate on the earlier of the termination date set forth above or 18&nbsp;months after such retirement; or </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;during
any part of such 3&nbsp;month period the option is not exercisable solely because of the condition set forth in paragraph&nbsp;4 above, in which event the
option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of 3&nbsp;months after the termination of
employment; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;exercise
of the option within 3&nbsp;months after termination of your employment with the Company or with an affiliate would result in liability under
Section&nbsp;16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of the termination </FONT></P>

</UL>
<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<BR>

<P><FONT SIZE=2>date
set forth above, the 10th day after the last date upon which exercise would result in such liability or 6&nbsp;months and 10&nbsp;days after the termination of your employment with the
Company or an affiliate. </FONT></P>

</UL>

<P><FONT SIZE=2>However,
this option may be exercised following termination of employment only as to that number of shares as to which it was exercisable on the date of termination of employment under the provision
of paragraph&nbsp;1 of this option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;This
option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then
require pursuant to subparagraph&nbsp;5(f) of the Plan. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;By
exercising this option you agree that: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;the
Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by
reason of: the exercise of this option; the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or the disposition of shares acquired upon such
exercise. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
option is not transferable except by will or by the laws of descent and distribution, and is exercisable during your lifetime only by you; notwithstanding the
foregoing, you may transfer part or all of this option to any of the following: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;your
spouse, children (by birth or adoption), stepchildren, grandchildren, or parents; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;a
trust or other entity established solely for your benefit or the benefit of your spouse, children (by birth or adoption), stepchildren, grandchildren, or parents for
estate planning purposes; or, </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;an
organization which is exempt from taxation under Section&nbsp;501(c)(3) of the Code or to which tax-deductible charitable contributions may be made
under Section&nbsp;170 of the Code. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
you may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of your death, will thereafter be
entitled to exercise the option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ
of the Company, or of the Company to continue your employment with the Company. In the event that this option is granted to you in connection with the performance of services as a consultant or
director, references to employment, employee and similar terms shall be deemed to include the performance of services as a consultant or a director, as the case may be, provided, however, that no
rights as an employee shall arise by reason of the use of such terms. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by
the Company to you, 5&nbsp;days after deposit in the United States mail, postage prepaid, addressed to you at the address specified on the attached or at such other address as you hereafter
designate by written notice to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;&nbsp;&nbsp;This
option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without
limitation the provisions of paragraph&nbsp;5 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. </FONT></P>


<P><FONT SIZE=2>Attachments: </FONT></P>

<UL>

<P><FONT SIZE=2>1989
Stock Option Plan<BR>
Notice of Exercise </FONT></P>

</UL>
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<FONT SIZE=2><A HREF="#toc_la1047_1">Isis Pharmaceuticals, Inc. Supplemental Stock Option Agreement</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.56
<SEQUENCE>6
<FILENAME>a2153640zex-10_56.htm
<DESCRIPTION>EXHIBIT 10.56
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.56  </B></FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="11%"><FONT SIZE=2>Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>Date:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="lc1047_isis_pharmaceuticals,_inc._200__isi02606"> </A>
<A NAME="toc_lc1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>Isis Pharmaceuticals,&nbsp;Inc.<BR>  2000 Plan Supplemental Stock Option Agreement    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Isis Pharmaceuticals,&nbsp;Inc. (the "Company"), pursuant to its 2000 Broad-Based Equity Incentive Plan (the "Plan") has this day granted to the undersigned
optionee, an option to purchase shares of the common stock of the Company ("Common Stock") as described herein. This option is not intended to qualify and will not be treated as an "incentive stock
option" within the meaning of Section&nbsp;422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). This option is subject to all of the terms and conditions as set forth
herein and on Attachment&nbsp;I hereto, which is incorporated herein in its entirety. </FONT></P>

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<TR VALIGN="TOP">
<TD WIDTH="30%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" ALIGN="CENTER"><FONT SIZE=2>Number&nbsp;of&nbsp;Shares&nbsp;Subject&nbsp;to&nbsp;Option:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="30%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><B>Vesting Schedule:  </B></FONT></P>

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<TR VALIGN="BOTTOM">
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares (installment)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Date of Earliest Exercise (vesting)(1)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<TD WIDTH="26%"><FONT SIZE=2><BR>
Exercise&nbsp;Price&nbsp;Per&nbsp;Share:(2)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT"><FONT SIZE=2><BR>
Expiration&nbsp;Date:(3)</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=5 ALIGN="RIGHT"><FONT SIZE=2>Percentage of Full-Time Work:</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2>100%</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>After
the first year, the option will vest monthly with 2.08% of the total grant vesting each month; provided, however, that during any period in which the undersigned provides
service at less than the Percentage of Full-Time Work set forth above, a reduced number of shares will vest as follows: the percentage of shares which will vest during such period of
reduced service will equal (a)&nbsp;the percentage of shares that would vest as set forth on this schedule, multiplied by (b)&nbsp;the percentage of full-time work furnished during the
period of reduced service divided by the Percentage of Full Time Work as set forth above. Increases of work percentage up to but not in excess of the Percentage of Full Time Work specified above will
result in a corresponding increase in the percentage of shares vesting. This reduction in vesting will not apply during any period of paid leave or the first 20 weeks of a period of unpaid leave. No
shares will vest during unpaid leave after the first 20&nbsp;weeks of such leave. Shares which do not vest because of reductions in work percentage or unpaid leave will be canceled and no longer
subject to this option.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Not
less than 85% of the fair market value of the Common Stock on the date of grant of this option.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Less
than 10&nbsp;years from the date of grant of this option. </FONT></DD></DL>
<BR>

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<TD COLSPAN=3><FONT SIZE=2>Isis Pharmaceuticals,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2>Duly authorized on behalf of<BR>
&nbsp;&nbsp;&nbsp;&nbsp;the Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>Address:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="41%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2><B>Optionee:  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acknowledges receipt of the option as described herein and the attachments referenced therein and understands that all rights and liabilities with respect to this
option are set forth in the option and the
Plan; and acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the optionee and the Company regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject. </FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><B>ATTACHMENT I<BR>
TERMS OF SUPPLEMENTAL STOCK OPTION  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The grant hereunder is in connection with and in furtherance of the Company's 2000 Broad-Based Equity Incentive Plan (the "Plan") for participation of the
Company's employees (including officers), directors or consultants and is intended to comply with the provisions of Rule&nbsp;701 promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
details of your option are as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
total number of shares of Common Stock subject to this option is set forth on the first page of the Supplemental Stock Option Agreement. Subject to the limitations
contained herein, this option is exercisable with respect to each installment indicated in the Vesting Schedule set forth on the first page of the Supplemental Stock Option Agreement on or after the
date of vesting applicable to such installment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
any provision in the Plan to the contrary, in the event of a Change in Control (as defined below) then the vesting and exercisability of this stock option
will be accelerated in full; </FONT><FONT SIZE=2><I>provided, however,</I></FONT><FONT SIZE=2> that if such potential acceleration of the vesting and exercisability of this stock option would cause a
contemplated Change in Control transaction that would otherwise be eligible to be accounted for as a "pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles as determined by the Company's independent certified public accountants prior to the Change of Control, such acceleration will not occur. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this paragraph&nbsp;2 only, Change in Control means: (i)&nbsp;a sale of all or substantially all of the assets of the Company; (ii)&nbsp;a merger or consolidation
in which the Company is not the surviving corporation and in which beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to
vote in the election of Directors has changed; (iii)&nbsp;a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, and in which beneficial ownership of
securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors has changed; or (iv)&nbsp;an acquisition by any person,
entity or group within the meaning of Section&nbsp;13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or subsidiary of the Company or other entity controlled by the Company) of the beneficial ownership (within the meaning of Rule&nbsp;13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The
Exercise Price of this option is set forth on the first page of the Supplemental Stock Option Agreement. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Payment
of the exercise price per share is due in full in cash (including check) upon exercise of all or any part of each installment which has become exercisable by
you. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
minimum number of shares with respect to which this option may be exercised at any one time is 1,000, unless the number of shares available for exercise (that is, the
remaining vested shares pursuant to paragraph&nbsp;1) equals less than 1,000 shares, in which case the minimum number of shares exercised must equal the number of shares then vested. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered
under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term of this option commences on the date hereof and, unless sooner terminated as set forth below or in the Plan, terminates on the Expiration Date. This option shall
terminate prior to the </FONT></P>

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<BR>

<P><FONT SIZE=2>expiration
of its term as follows: 3&nbsp;months after the termination of your employment with the Company or an Affiliate of the Company (as defined in the Plan) for any reason or for no reason
unless: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;such
termination of employment is due to your Disability, in which event the option shall terminate on the earlier of the termination date set forth above or
1&nbsp;year following such termination of employment; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;such
termination of employment is due to your death, in which event the option shall terminate on the earlier of the termination date set forth above or 18&nbsp;months
after your death; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;(i)&nbsp;such
termination of employment is due to your retirement; </FONT><FONT SIZE=2><I>and</I></FONT><FONT SIZE=2> (ii)&nbsp;you were over the age of 55 at the
time of such retirement; </FONT><FONT SIZE=2><I>and</I></FONT><FONT SIZE=2> (iii)&nbsp;you had been an employee, director or consultant (or any combination thereof) of the Company for a continuous
and uninterrupted period of at least 5&nbsp;years prior to such retirement, in which event (</FONT><FONT SIZE=2><I>i.e</I></FONT><FONT SIZE=2> having satisfied all of the conditions set forth in
clauses&nbsp;(i) through (iii) above) the option shall terminate on the earlier of the termination date set forth above or 18&nbsp;months after such retirement; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;during
any part of such 3&nbsp;month period the option is not exercisable solely because of the condition set forth in paragraph&nbsp;5 above, in which event the
option shall not terminate until the earlier of the termination date set forth above or until it shall have been exercisable for an aggregate period of 3&nbsp;months after the termination of
employment; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;exercise
of the option within 3&nbsp;months after termination of your employment with the Company or with an Affiliate would result in liability under
Section&nbsp;16(b) of the Securities Exchange Act of 1934, in which case the option will terminate on the earlier of the termination date set forth above, the 10th day after the last date upon which
exercise would result in such liability or 6&nbsp;months and 10&nbsp;days after the termination of your employment with the Company or an Affiliate. </FONT></P>

</UL>

<P><FONT SIZE=2>However,
this option may be exercised following termination of employment only as to that number of shares as to which it was exercisable on the date of termination of employment under the provision
of paragraph&nbsp;1 of this option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;This
option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;By
exercising this option you agree that: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;the
Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by
reason of: the exercise of this option; the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or the disposition of shares acquired upon such
exercise. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
option is not transferable except by will or by the laws of descent and distribution, and is exercisable during your lifetime only by you; notwithstanding the
foregoing, you may transfer part or all of this option to any of the following: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;your
spouse, children (by birth or adoption), stepchildren, grandchildren, or parents; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;a
trust or other entity established solely for your benefit or the benefit of your spouse, children (by birth or adoption), stepchildren, grandchildren, or parents for
estate planning purposes; or, </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;an
organization which is exempt from taxation under Section&nbsp;501(c)(3) of the Code or to which tax-deductible charitable contributions may be made
under Section&nbsp;170 of the Code. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
you may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of your death, will thereafter be
entitled to exercise the option. </FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ
of the Company, or of the Company to continue your employment with the Company. In the event that this option is granted to you in connection with the performance of services as a consultant or
director, references to employment, employee and similar terms shall be deemed to include the performance of services as a consultant or a director, as the case may be, provided, however, that no
rights as an employee shall arise by reason of the use of such terms. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;&nbsp;&nbsp;Any
notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by
the Company to you, 5&nbsp;days after deposit in the United States mail, postage prepaid, addressed to you at the address specified on the attached or at such other address as you hereafter
designate by written notice to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;&nbsp;&nbsp;This
option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without
limitation the provisions of paragraph&nbsp;6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. </FONT></P>

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<TD WIDTH="15%"><FONT SIZE=2>Attachments:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="82%"><FONT SIZE=2>2000 Broad-Based Equity Incentive Plan<BR>
Notice of Exercise</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='page-break-before:always'></p>
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<FONT SIZE=2><A HREF="#toc_lc1047_1">Isis Pharmaceuticals, Inc. 2000 Plan Supplemental Stock Option Agreement</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-10.57
<SEQUENCE>7
<FILENAME>a2153640zex-10_57.htm
<DESCRIPTION>EXHIBIT 10.57
<TEXT>
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<HEAD>
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<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.57  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="le1047_2002_non-employee_direc__le102211"> </A>
<A NAME="toc_le1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>2002 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN<BR>  GRANT NOTICE    <BR>    </B></FONT></P>

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<TD WIDTH="11%"><FONT SIZE=2>Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="47%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="6%"><FONT SIZE=2>Date:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="31%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
</TABLE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="le1047_isis_pharmaceuticals,_inc._non__isi02473"> </A>
<A NAME="toc_le1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>Isis Pharmaceuticals,&nbsp;Inc.<BR>  Non-Statutory Stock Option Agreement    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>ISIS PHARMACEUTICALS,&nbsp;INC. </FONT><FONT SIZE=2>(the "Company"), pursuant to its 2002 Non-Employee Directors' Stock
Option Plan (the "Plan"), hereby grants to Optionholder an option to purchase the number of shares of the Company's Common Stock set forth below. This option is subject to all of the terms and
conditions as set forth herein and in the Stock Option Agreement (Attachment&nbsp;I hereto), the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their
entirety. </FONT></P>

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<TD WIDTH="30%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="36%" ALIGN="CENTER"><FONT SIZE=2>Number&nbsp;of&nbsp;Shares&nbsp;Subject&nbsp;to&nbsp;Option:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="30%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
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<P><FONT SIZE=2><B>Vesting Schedule:  </B></FONT></P>

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<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Number of Shares (installment)</B></FONT><HR NOSHADE></TH>
<TH WIDTH="11%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="45%" ALIGN="CENTER"><FONT SIZE=1><B>Date of Earliest Exercise (vesting)</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="45%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="11%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<TD WIDTH="26%"><FONT SIZE=2><BR>
Exercise&nbsp;Price&nbsp;Per&nbsp;Share:(1)</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="RIGHT"><FONT SIZE=2><BR>
Expiration&nbsp;Date:(2)</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="22%" ALIGN="CENTER"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
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<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Not
less than 100% of the fair market value of the Common Stock on the date of grant of this option.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Less
than 10&nbsp;years from the date of grant of this option. </FONT></DD></DL>
<BR>

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<TD COLSPAN=3><FONT SIZE=2>Isis Pharmaceuticals,&nbsp;Inc.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="38%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2><BR>
Optionee:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="41%"><FONT SIZE=2><BR>
&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD COLSPAN=3 VALIGN="TOP"><FONT SIZE=2>Duly authorized on behalf of<BR>
&nbsp;&nbsp;&nbsp;&nbsp;the Board of Directors</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=2>Address:</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="41%" VALIGN="TOP"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<P><FONT SIZE=2><B>Optionee:  </B></FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional Terms/Acknowledgements:</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this
Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire
understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of
(i)&nbsp;options previously granted and delivered to Optionholder under the Plan, and (ii)&nbsp;the following agreements only: </FONT></P>

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<TD WIDTH="39%" ALIGN="CENTER"><FONT SIZE=2><B>OTHER AGREEMENTS:</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="39%" ALIGN="CENTER"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="58%"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE></TD>
</TR>
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<HR NOSHADE>
<P style='page-break-before:always'></p>
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<P ALIGN="CENTER"><FONT SIZE=2><B>ISIS PHARMACEUTICALS,&nbsp;INC.<BR>
2002 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>STOCK OPTION AGREEMENT<BR>
(NONSTATUTORY STOCK OPTION)  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock Option Agreement, Isis Pharmaceuticals,&nbsp;Inc. (the "Company") has granted you an
option under its 2002 Non-Employee Directors' Stock Option Plan (the "Plan") to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise
price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
details of your option are as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>1.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;VESTING.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;NUMBER OF SHARES AND EXERCISE PRICE.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The number of shares of
Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;METHOD OF PAYMENT.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Payment of the exercise price is due in
full upon exercise of all or any part of your option. You may make payment of the exercise price in cash or by check. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;WHOLE SHARES.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;You may exercise your option only for whole
shares of Common Stock. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;SECURITIES LAW COMPLIANCE.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common
Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must
also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with
such laws and regulations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;TERM.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;You may not exercise your option before the
commencement of its term or after its term expires. Unless otherwise provided in Section&nbsp;11(d) of the Plan, the term of your option commences on the Date of Grant and expires upon the </FONT> <FONT SIZE=2><B><I>earliest</I></B></FONT><FONT
SIZE=2> of the following:</FONT></P>

<UL>

<P><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>3&nbsp;months after the termination of your Continuous Service for any reason other than your Qualified Retirement (as defined in
Section&nbsp;6(d) below), Disability or death, provided that if during any part of such 3&nbsp;month period your option is not exercisable solely because of the condition set forth in the
preceding paragraph relating to "Securities Law Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of
3&nbsp;months after the termination of your Continuous Service; </FONT></P>

<P><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>12&nbsp;months after the termination of your Continuous Service due to your Disability; </FONT></P>

<P><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>18&nbsp;months after your death if you die either during your Continuous Service or within 3&nbsp;months after your Continuous Service
terminates; </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>18&nbsp;months after the termination of your Continuous Service due to your retirement, where (i)&nbsp;you were over the age of 55 at the
time of such retirement; and (ii)&nbsp;you had been an employee, director or consultant (or any combination thereof) of the Company for a continuous and uninterrupted period of at least
5&nbsp;years prior to such retirement (having satisfied all of the conditions set forth in clauses&nbsp;(i) and (ii) above, "Qualified Retirement"); or </FONT></P>


<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>the day before the 10th anniversary of the Date of Grant. </FONT></P>

</UL>
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<UL>
<BR>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;EXERCISE.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>You may exercise the vested portion of your option during its term by delivering a Notice of Exercise (in a form designated by the
Company)
together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the
Company may then require. </FONT></P>

<P><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The minimum number of shares with respect to which this option may be exercised at any one time is 1,000, unless the number of shares
available
for exercise (that is, the remaining vested shares equals less than 1,000 shares, in which case the minimum number of shares exercised must equal the number of shares then vested. </FONT></P>


<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an
arrangement
providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1)&nbsp;the exercise of your option, (2)&nbsp;the lapse of any substantial
risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3)&nbsp;the disposition of shares of Common Stock acquired upon such exercise. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>8.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;TRANSFERABILITY.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This option is not transferable except by
will or by the laws of descent and distribution, and is exercisable during your lifetime only by you; notwithstanding the foregoing, you may transfer part or all of this option to any of the
following: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;your
spouse, children (by birth or adoption), stepchildren, grandchildren, or parents; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;a
trust or other entity established solely for your benefit or the benefit of your spouse, children (by birth or adoption), stepchildren, grandchildren, or parents for
estate planning purposes; or, </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;an
organization which is exempt from taxation under Section&nbsp;501(c)(3) of the Code or to which tax-deductible charitable contributions may be made
under Section&nbsp;170 of the Code. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
you may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of your death, will thereafter be
entitled to exercise the option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>9.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;RIGHT OF REPURCHASE.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>10.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;OPTION NOT A SERVICE CONTRACT.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Your option is not an
employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of
the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;WITHHOLDING OBLIGATIONS.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;You may not exercise your option
unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and
the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;NOTICES.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, 5&nbsp;days after deposit in the United States mail,
postage prepaid, addressed to you at the last address you provided to the Company. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>13.</B></FONT><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;GOVERNING PLAN DOCUMENT.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be
promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. </FONT></P>

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<FONT SIZE=2><A HREF="#toc_le1047_1">2002 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN GRANT NOTICE</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_le1047_2">Isis Pharmaceuticals, Inc. Non-Statutory Stock Option Agreement</A></FONT><BR>

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<DOCUMENT>
<TYPE>EX-10.58
<SEQUENCE>8
<FILENAME>a2153640zex-10_58.htm
<DESCRIPTION>EXHIBIT 10.58
<TEXT>
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<HEAD>
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<P ALIGN="RIGHT"><FONT SIZE=2>
CONFIDENTIAL TREATMENT REQUESTED<BR>
UNDER 17 C.F.R. &sect;&sect; 200.80(b)4, AND 240.24 </FONT></P>

<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit 10.58  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_collaboration_and_license_agreement"> </A>
<A NAME="toc_ks1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>COLLABORATION AND LICENSE AGREEMENT    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>THIS COLLABORATION AND LICENSE AGREEMENT</B></FONT><FONT SIZE=2> ("Agreement") is made and entered into effective as of
February&nbsp;10, 2005 (the "Effective Date"), by and among Sarissa,&nbsp;Inc., having principal offices at 121 Timber Drive, London, ON, N6K4A2, Canada ("Sarissa") and Isis
Pharmaceuticals,&nbsp;Inc., having principal offices at 2292 Faraday Avenue, Carlsbad CA 92008 ("Isis"). Sarissa and Isis each may be referred to herein individually as a "Party," or collectively as
the "Parties." </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>WHEREAS</B></FONT><FONT SIZE=2>, Isis and Sarissa wish to collaborate in the identification of a lead TS ASO targeted to inhibit Thymidylate Synthase ("TS"),
using Isis' proprietary MOE chemistry, on the terms set forth below; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>NOW, THEREFORE,</B></FONT><FONT SIZE=2> the Parties do hereby agree as follows: </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_1_#151;definitions"> </A>
<A NAME="toc_ks1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 1&#151;DEFINITIONS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capitalized terms used in this Agreement and not otherwise defined herein have the meanings set forth in Appendix&nbsp;1. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_2_#151;_scope_of_colla__art02197"> </A>
<A NAME="toc_ks1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 2&#151;<BR>  SCOPE OF COLLABORATION; COLLABORATION ACTIVITIES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;2.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Scope of Collaboration.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Parties wish to
collaborate to identify TS ASOs (the "Collaboration"), according to the Project Plan attached hereto as Appendix&nbsp;2.1 and made part of this Agreement. Following the completion of the Project
Plan, Sarissa will be solely responsible for the continued development and commercialization of any Products subject to royalty and milestone payments to be paid to Isis as set forth in this
Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;2.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Collaboration Activities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.2.1&nbsp;General.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The Parties will use Commercially Reasonable Efforts to conduct their respective responsibilities
outlined in the Project Plan. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;2.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Selecting TS ASOs.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3.1&nbsp;Selection of First TS ASO.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>From the TS ASOs generated under the Project Plan or from TS ASOs generated by
Isis prior to the Effective Date, Sarissa will select one TS ASO for use in a Product to take into IND enabling toxicology for purposes of evaluating such Product in human clinical trials. Sarissa may
replace the selected TS ASO with any other TS ASO generated under the Project Plan or generated by Isis prior to the Effective Date, and for no additional cost (except the cost of new or additional
active pharmaceutical ingredient for such new TS ASO supplied to Sarissa), upon written notice to Isis. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3.2&nbsp;Selection of Additional TS ASOs.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If, in addition to the TS ASOs selected in Section&nbsp;2.3.1, Sarissa
elects to select one or more additional TS ASOs generated under the Project Plan or generated by Isis prior to the Effective Date, for use in a Product to take into human clinical trials, Sarissa will
so notify Isis and will pay Isis the payment set forth in Section&nbsp;4.2. Notwithstanding the foregoing, Sarissa will not be required to pay the fee under Section&nbsp;4.2 for additional TS
ASOs, so long as Sarissa uses such additional TS ASOs as part of a Tandem that includes a TS ASO selected under Section&nbsp;2.3.1. </FONT></P>

</UL>
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<UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.3.3&nbsp;Responsibilities Following Completion of the Project Plan.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Following the completion of the Project Plan,
Sarissa will be solely responsible for further development and commercialization of the Product, including but not limited to: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;Contracting
for the manufacturing of all drug needed for toxicology studies and clinical trials, as described in Section&nbsp;2.4. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;Coordinating
all aspects of animal pharmacology and toxicology studies needed for IND filing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;Conducting
clinical trials. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;Negotiating
any and all sublicensing agreements with Third Parties for the ongoing development and/or marketing of the Product. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>If
requested by Sarissa in order to facilitate further development and commercialization of the Product, the Parties will mutually agree to a consulting agreement under which Isis will provide
consulting in addition to the hours set forth in the Project Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;2.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Manufacturing of Product.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>2.4.1&nbsp;</B></FONT><FONT SIZE=2>Isis will have the first right to manufacture the Product, on mutually agreeable, commercially reasonable terms and
conditions, and pursuant to a supply agreement to be agreed to by the Parties containing standard terms. If Isis is unable or unwilling to manufacture the Product, or if the Parties cannot reach
agreement on the terms and conditions within [***] days of a request for transfer pricing quote by Sarissa, Sarissa may (i)&nbsp;have the Product manufactured by a
manufacturer already licensed under Isis' proprietary manufacturing and analytical technology; or (ii)&nbsp;have the Product manufactured using a process not covered by Isis' proprietary
manufacturing and analytical technology. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_3_#151;_grant_of_rights"> </A>
<A NAME="toc_ks1047_4"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 3&#151;<BR>  GRANT OF RIGHTS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;3.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>License Grant for Collaboration Activities.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1.1&nbsp;Isis Grant.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Subject to the terms and conditions of this Agreement (including but not limited to
Article&nbsp;4 and Section&nbsp;9.2), Isis hereby grants to Sarissa an exclusive, worldwide license (a)&nbsp;under the Isis Product-Specific Technology Patents and the Joint Patents to any
Product-Specific Technology and (b)&nbsp;under the Isis Core Technology Patents, in each case solely to develop, make, have made, use, sell, offer for sale, have sold and import Products. The
licenses granted to Sarissa are sublicensable only in connection with a license of Products to a Third Party for the continued development and commercialization of Products in accordance with the
terms of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1.2&nbsp;Sarissa Grant.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Subject to the terms and conditions of this Agreement, Sarissa hereby grants to Isis a
non-exclusive, non-transferable, limited license or sublicense, as the case may be, under the Sarissa Product-Specific Technology Patents, solely to perform Isis'
responsibilities in the Project Plan. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1.3&nbsp;Additional Chemistry.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Should Sarissa notify Isis in writing that Sarissa wishes to collaborate to create
additional antisense products targeting TS and incorporating other Isis proprietary chemistry, such as PNA or modified siRNA, then Isis and Sarissa will negotiate in good faith an additional license
to these chemistries, including an appropriate allocation of Third Party financial obligations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>3.1.4&nbsp;Conditions to Licenses.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Notwithstanding the foregoing, if (i)&nbsp;Sarissa does not complete its first
Qualified Financing by the [***]-month anniversary of the Effective Date or (ii)&nbsp;Sarissa </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

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<UL>
<BR>

<P><FONT SIZE=2>fails
to use Commercially Reasonable Efforts to develop and commercialize Products, any licenses granted to Sarissa under this Article&nbsp;3 will automatically terminate and a Discontinuance will
be deemed to have occurred. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_4_#151;financial_provisions"> </A>
<A NAME="toc_ks1047_5"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 4&#151;FINANCIAL PROVISIONS    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Up-Front Payment by
Sarissa.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sarissa will pay an up-front license fee of $1,000,000 (U.S.) to Isis, payable in Sarissa's sole discretion either (i)&nbsp;in cash or
(ii)&nbsp;by convertible promissory note. The Note will be issued in accordance with the Note Purchase Agreement executed concurrently herewith. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Payment for Additional TS ASOs.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If Sarissa
elects to select an TS ASO for use in an additional Product as set forth in Section&nbsp;2.3.2, Sarissa will pay Isis an up-front fee of $1,000,000 (U.S.) for each TS ASO selected. Such
up-front fee may be paid in cash or equity securities of Sarissa at Sarissa's discretion, </FONT><FONT SIZE=2><I>provided that</I></FONT><FONT SIZE=2> any equity securities so issued to
Isis will be issued at the same per-share price and will be of the same class with the same rights and preferences as the equity securities issued in Sarissa's most recent Qualified
Financing. Notwithstanding the foregoing, (i)&nbsp;if Sarissa's most recent Qualified Financing occurred more than [***] months prior to the date such up-front
fee becomes due, Isis in its sole discretion can elect to be paid in cash only and (ii)&nbsp;in no event will Isis be required to take equity in excess of 18% of all shares of Sarissa, fully diluted
as converted. In addition to the up-front fee, Sarissa will pay to Isis the milestone payments and royalty payments detailed in Article&nbsp;4 hereof as and when such milestone payments
and royalty payments are due for a Product containing such TS ASO. All milestone payments and royalty payments for such Product will be in addition to all milestone payments and royalty payments
required to be made for any other Product being developed or commercialized by Sarissa. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Milestone Payments by Sarissa.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sarissa will
pay to Isis the relevant milestone payment not more than 30&nbsp;days after achievement, by Sarissa or a sublicensee, of each of the applicable events in the first primary indication for each
Product developed hereunder; </FONT><FONT SIZE=2><I>provided however</I></FONT><FONT SIZE=2> that additional milestone payments will be reduced by [***]% when a Product meets
the same milestone in an additional indication once that milestone payment has already been paid for the first primary indication, as follows: </FONT></P>

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<TABLE WIDTH="79%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="88%" ALIGN="LEFT"><FONT SIZE=1><B>Event<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="9%" ALIGN="CENTER"><FONT SIZE=1><B>Payment</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="88%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
</TABLE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Royalty Payments by Sarissa.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In consideration
of Isis' collaborative efforts and the licenses granted hereunder, Sarissa will pay Isis a royalty of [***]% of Net Sales of the Product. Sarissa will pay such royalties for
the Term of the Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.5</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Third Party Payments.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In addition to the
royalty set forth in Section&nbsp;4.4, Sarissa will pay to Isis a royalty of [***]% of Net Sales of Product, pursuant to a license agreement with
[***], dated [***], and a royalty of [***]% of Net Sales of Product pursuant to a license agreement with
[***] dated [***]. In the event that Isis negotiates reduced royalties with these Third Party licensors, the royalties due hereunder will still be paid
to Isis. Notwithstanding the foregoing, the Parties agree that if the Isis Patent Rights licensed by Isis from [***] and/or [***] and sublicensed under
this Agreement cease to have any Valid Claims during the term of this Agreement, then Sarissa will no longer be responsible for paying the royalties flowing through to [***]
and/or [***], as applicable, and the total royalty payable will be reduced accordingly. Isis will promptly advise Sarissa in writing regarding any </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

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<A NAME="page_ks1047_1_4"> </A>
<BR>

<P><FONT SIZE=2>changes
to its licenses with [***] or [***] that would materially affect the respective royalties under such agreements. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.6</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Timing of Royalty Payments.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The royalties
will become due and payable within 60&nbsp;days of each respective Royalty Due Date and shall be calculated in respect of the Net Sales in the 3&nbsp;month period immediately preceding the
applicable Royalty Due Date. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.7</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Payment Method.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any amounts due to a Party
under this Agreement will be paid in U.S. dollars, by wire transfer in immediately available funds to an account designated by the receiving Party. Any payments or portions thereof due hereunder which
are not paid on the date such payments are due under this Agreement will bear interest at a rate equal to the lesser of the prime rate as published in </FONT><FONT SIZE=2><I>The Wall Street
Journal</I></FONT><FONT SIZE=2>, Eastern Edition, on the first day of each calendar quarter in which such payments are overdue, plus 6%, or the maximum rate permitted by law, whichever is lower,
calculated on the number of days such payment is delinquent, compounded monthly. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.8</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Currency; Foreign Payments.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If any currency
conversion will be required in connection with any payment hereunder, such conversion will be made by using the exchange rate for the purchase of U.S. dollars as published in </FONT> <FONT SIZE=2><I>The Wall Street Journal</I></FONT><FONT SIZE=2>,
Eastern Edition, on the last business day of the calendar quarter to which such payments relate. If at any time legal
restrictions prevent the prompt remittance of any payments in any jurisdiction, the applicable Party may notify the other and make such payments by depositing the amount thereof in local currency in a
bank account or other depository in such country in the name of the receiving Party or its designee, and such Party will have no further obligations under this Agreement with respect thereto. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.9</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Taxes.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;A Party may deduct from any amounts it
is required to pay to the other Party pursuant to this Agreement an amount equal to that withheld for or due on account of any taxes (other than taxes imposed on or measured by net income) or similar
governmental charge imposed on the receiving Party by a jurisdiction of the paying Party ("Withholding Taxes"). The paying Party will provide the receiving Party a certificate evidencing payment of
any Withholding Taxes hereunder within 30&nbsp;days of such payment and will reasonably assist the receiving Party, at the receiving Party's expense, to obtain the benefit of any applicable tax
treaty. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;4.10</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Records Retention; Audit.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.10.1&nbsp;Record Retention.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each Party will maintain (and will ensure that its sublicensees will maintain) complete
and accurate books, records and accounts that fairly reflect Net Sales with respect to the Product, in each case in sufficient detail to confirm the accuracy of any payments required hereunder and in
accordance with GAAP, which books, records and accounts will be retained by such party until the later of (i)&nbsp;3&nbsp;years after the end of the period to which such books, records and
accounts pertain, and (ii)&nbsp;the expiration of the applicable tax statute of limitations (or any extensions thereof), or for such longer period as may be required by Applicable Law. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.10.2&nbsp;Audit.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each Party will have the right to have an independent certified public accounting firm of
nationally recognized standing, reasonably acceptable to the audited Party, have access during normal business hours, and upon reasonable prior written notice, to such of the records of the other
Party (and
its sublicensees) as may be reasonably necessary to verify the accuracy of Net Sales, as applicable, for any calendar quarter or calendar year ending not more than [***] months
prior to the date of such request; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that neither Party will have the right to conduct more than one such audit in any Calendar Year
except as provided below. The requesting Party shall bear the cost of such audit unless the audit reveals a variance of more than [***]% from the reported results, in which
case the audited Party shall bear the cost of the audit. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.10.3&nbsp;Payment of Additional Amounts.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If, based on the results of such audit, additional payments are owed by
the audited Party under this Agreement, the audited Party will make such </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

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<UL>
<BR>

<P><FONT SIZE=2>additional
payments, with interest as set forth in Section&nbsp;4.7, within 60&nbsp;days after the date on which such accounting firm's written report is delivered to such Party. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>4.10.4&nbsp;Confidentiality.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The auditing Party will treat all information subject to review under this
Section&nbsp;4.10 in accordance with the confidentiality provisions of Article&nbsp;5 and will cause its accounting firm to enter into a reasonably acceptable confidentiality agreement with the
audited Party obligating such firm to maintain all such financial information in confidence pursuant to such confidentiality agreement. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_5_#151;_confidentiality"> </A>
<A NAME="toc_ks1047_6"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 5&#151;<BR>  CONFIDENTIALITY    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;5.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Disclosure and Use Restriction.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as
expressly provided herein, the Parties agree that, for the Term and for five (5)&nbsp;years thereafter, each Party will keep completely confidential and will not publish, submit for publication or
otherwise disclose, and will not use for any purpose except for the purposes contemplated by this Agreement, any Confidential Information received from the other Party. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>5.1.1&nbsp;Authorized Disclosure.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each Party may disclose Confidential Information of the other Party to the extent
that such disclosure is: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>made in response to a valid order of a court of competent jurisdiction; </FONT><FONT SIZE=2><I>provided,
however</I></FONT><FONT SIZE=2>, that such Party will first have given notice to such other Party and given such other Party a reasonable opportunity to quash such order and to obtain a protective
order requiring that the Confidential
Information and documents that are the subject of such order be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; and </FONT> <FONT SIZE=2><I>provided further</I></FONT><FONT
SIZE=2> that if a disclosure order is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to
such court or governmental order will be limited to that information which is legally required to be disclosed in response to such court or governmental order; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>otherwise required by law; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, that the disclosing Party
will provide such other Party with notice of such disclosure in advance thereof to the extent practicable; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>made by such Party to the Regulatory Authorities as necessary for the development or commercialization of a Product in a
country, as required in connection with any filing, application or request for Regulatory Approval or as required by applicable securities laws and regulations; </FONT><FONT SIZE=2><I>provided,
however,</I></FONT><FONT SIZE=2> that reasonable measures will be taken to assure confidential treatment of such information; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>made by such Party, in connection with the performance of this Agreement, to permitted sublicensees, licensors,
directors, officers, employees, consultants, representatives or agents, each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at least equivalent in
scope to those set forth in this Article&nbsp;5; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>made by such Party to existing or potential acquirers; existing or potential pharmaceutical collaborators (to the extent
contemplated hereunder); investment bankers; existing or potential investors, merger candidates, partners, venture capital firms or other financial institutions or investors for purposes of obtaining
financing; or, bona fide strategic potential partners; each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at least equivalent in scope to those
set forth in this Article&nbsp;5. </FONT></P>

</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;5.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Press Releases.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Press releases or other
similar public communication by either Party relating to this Agreement, unless relating solely to a Product being developed by the Party making the communication, will be approved in advance by the
other Party, which approval will not be </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

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<P><FONT SIZE=2>unreasonably
withheld or delayed, except for those communications required by Applicable Law, disclosures of information for which consent has previously been obtained, and information of a similar
nature to that which has been previously disclosed publicly with respect to this Agreement, each of which will not require advance approval, but will be provided to the other Party as soon as
practicable after the release or communication thereof. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;5.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Publications.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;At least
[***] days prior to submission of any material related to the research or development activities hereunder for publication or presentation, the
submitting Party will provide to the other Party a draft of such material for its review and comment. The receiving Party will provide any comments to the submitting Party within
[***] days of receipt of such materials. No publication or presentation with respect to the research or development activities hereunder will be made unless and until the other
Party's comments on the proposed publication or presentation have been addressed and changes have been received and agreed upon and any information determined by the other Party to be Confidential
Information has been removed. If requested in writing by the other Party, the submitting Party will withhold material from submission for publication or presentation for a reasonable time to allow for
the filing of a patent application. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ks1047_article_6_#151;_intellectual_property"> </A>
<A NAME="toc_ks1047_7"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 6&#151;<BR>  INTELLECTUAL PROPERTY    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;6.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Intellectual Property Ownership.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1.1&nbsp;Ownership of Intellectual Property.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Isis will own all inventions made (as determined under United States
patent laws) solely by its employees and agents, and all Patents claiming such inventions. Sarissa will own all inventions made (as determined under United States patent laws) solely by its employees
and agents, and all Patents claiming such inventions. All inventions made (as determined under United States patent laws) jointly by employees or agents of Isis and employees or agents of Sarissa
("Joint Technology"), and all Patents claiming such inventions, will be owned jointly by Isis and Sarissa. During the Term of this Agreement, each Party shall promptly disclose in writing to the other
Party on an ongoing basis, and prior to filing any Patent, any Joint Technology or Product-Specific Technology invented as part of the Collaboration. In addition, promptly after executing this
Agreement, the Parties will each disclose to each other the current status of all Product-Specific Technology Patents Controlled by such Party and licensed under this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.1.2&nbsp;Ownership of Regulatory Documentation.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Unless and until Isis sends an Election Notice pursuant to
Article&nbsp;9 of this Agreement, all Regulatory Documentation with respect to a Product will be owned by Sarissa, or its sublicensee, if applicable. If Sarissa discontinues development of such
Product and Isis sends an Election Notice in accordance with Section&nbsp;9.2, all Regulatory Documentation with respect to such Product will be transferred to Isis. In the event that this Agreement
terminates pursuant to Section&nbsp;9.2, all Regulatory Documentation will remain with the Party that first secured such Regulatory Documentation. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;6.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Prosecution of Patents.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2.1&nbsp;Solely Owned Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>With the exception of Product-Specific Technology Patents, as set forth in 6.2.2,
each Party will have the sole right, at its cost and expense and at its sole discretion, to obtain, prosecute and maintain throughout the world any Patents solely owned or Controlled by such Party. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2.2&nbsp;Product-Specific Technology Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Sarissa will have the sole right and at its sole discretion, to
obtain, prosecute and maintain throughout the world the Product-Specific Technology Patents. Sarissa shall reimburse Isis for all of Isis' reasonable out-of-pocket costs
incurred prior to and after entering into this Agreement to obtain, prosecute and maintain throughout the world, </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
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<A NAME="page_ks1047_1_7"> </A>
<UL>
<BR>

<P><FONT SIZE=2>any
Product-Specific Technology Patents Controlled by Isis, </FONT><FONT SIZE=2><I>provided however</I></FONT><FONT SIZE=2> that Sarissa will not be required to make any such reimbursements for
expenses incurred by Isis after the occurrence of the Discontinuance, as and when Sarissa issues such notice. As of December&nbsp;31, 2004, these out-of-pocket costs where
approximately $[***] Sarissa will keep Isis informed of all Isis Product Specific Technology Patent applications and registrations to be filed by Sarissa, and Isis shall have
the right to comment on such applications within the timeframes of the patent filing process and deadlines. Notwithstanding the foregoing, if Isis is unilaterally developing and commercializing the
Product in accordance with Section&nbsp;9.2, Isis will have the first right to file, prosecute and maintain any Product-Specific Technology Patents at its expense. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2.3&nbsp;Filing of Joint Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The Parties will cooperate with one another with respect to the filing,
prosecution and maintenance of all Joint Patents. The Parties will designate one of the Parties to be responsible for, and to initially bear the expense of, the preparation, filing, prosecution, and
maintenance of a Joint Patent, </FONT><FONT SIZE=2><I>provided that</I></FONT><FONT SIZE=2> the responsible Party will be entitled to reimbursement by the other Party of an equal share of the
responsible Party's expenses. The Parties agree that for all Joint Patents for Product-Specific Technology, Sarissa will be deemed to be the responsible Party for the purposes of this
Section&nbsp;6.2.3, and will bear all expenses for the preparation, filing, prosecution and maintenance of such Patents. With the exception of Joint Patent to Product-Specific Technology, which will
be as set forth in Section&nbsp;6.2.2, the responsible Party will consult with the other Party as to the preparation, filing, prosecution, and maintenance of such Joint Patent reasonably prior to
any deadline or action with the U.S. Patent&nbsp;&amp; Trademark Office or any foreign patent office, and will furnish to the other Party copies of all relevant documents reasonably in advance of such
consultation. For the life of the Joint Patents, the Parties will mutually agree upon all Joint Patent filings. Notwithstanding the foregoing, if Isis is unilaterally developing and commercializing
the Product in accordance with Section&nbsp;9.2, Isis will have the first right to file, prosecute and maintain any Joint Patents to Product-Specific Technology at its expense. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.2.4&nbsp;Cooperation.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each Party will cooperate reasonably in the preparation, filing, prosecution, and maintenance
of the other Party's Patents, the Product-Specific Technology Patents and the Joint Patents. Such cooperation includes (a)&nbsp;promptly executing all papers and instruments and requiring employees
to execute such papers and instruments as reasonable and appropriate so as to enable such other Party, to file, prosecute, and maintain its Patents in any country; and (b)&nbsp;promptly informing
such
other Party of matters that may affect the preparation, filing, prosecution, or maintenance of any such Patents. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;6.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Enforcement of Patents</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3.1&nbsp;Rights and Procedures.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If Isis or Sarissa determines that any Patent licensed hereunder is being infringed
by a Third Party's activities and that such infringement could affect the exercise by the Parties of their respective rights and obligations under this Agreement, it will promptly notify the other
Party in writing. </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Joint Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>With respect to infringement of a Joint Patent that is not a Product-Specific Technology
Patent, the Party responsible for filing, prosecution and maintenance of such Joint Patent under Section&nbsp;6.2.3 will have the first right to bring and control any action or proceeding with
respect to such Joint Patent, and will bear all expenses thereof, and the other Party will have the right, at its own expense, to be represented in any such action; </FONT><FONT SIZE=2><I>provided,
however,</I></FONT><FONT SIZE=2> that if the Party with the first right to bring and control actions and proceedings with respect to such Joint Patent fails to bring an action or proceeding within
ninety (90)&nbsp;days following notice of such infringement, or earlier notifies the other Party in writing of its intent not to take such steps, the other Party will have the right to do so at its
expense, and the first Party will have the right, at its own expense, to be represented in any </FONT></P>

</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<A NAME="page_ks1047_1_8"> </A>
<UL>
<UL>

<P><FONT SIZE=2>such
action. Notwithstanding the foregoing, if the infringement is likely to have a material adverse effect on the development or commercialization of the Product, the Parties will meet to determine
whether to defend against such infringement based on the Joint Patents, and if the Parties mutually agree to proceed in defending such infringement based on the Joint Patents, the Parties will share
(on a pre-determined basis as agreed to by the Parties) in the reasonable costs incurred relating to the removal of any such infringement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Product-Specific Technology Patents.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>With respect to Product-Specific Technology Patents, Sarissa will have
the first right, at Sarissa's expense, but not the obligation, to remove such infringement. In the event that Sarissa fails to take commercially appropriate steps to remove any infringement of any
such Product-Specific Technology Patent within ninety (90)&nbsp;days following notice of such infringement, or earlier notifies Isis in writing of its intent not to take such steps, and such
infringement is likely to have a material adverse effect on the Product, Isis will have the right to do so at its expense, and Sarissa will have the right, at its own expense, to be represented in any
such action. If Isis is unilaterally developing and commercializing the Product pursuant to Section&nbsp;9.2, Isis will have the right, at Isis's own expense, to remove infringement of the
Product-Specific Technology Patents. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Isis Patent Rights.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Except as set forth in Sections 6.3.1(a) and (b)&nbsp;above, with respect to the Isis
Patent Rights, Isis will have the sole right, but not the obligation, at its own expense, to remove such infringement using commercially appropriate steps, including the filing of an infringement suit
or taking
other similar action. Notwithstanding the foregoing, if the infringement is likely to have a material adverse effect on the development or commercialization of the Product, the Parties will meet to
determine whether to abate such infringement based on the Isis Patent Rights, and if the Parties mutually agree to abate such infringement based on the Isis Patent Rights, Isis will remove the
infringement using commercially appropriate steps, and the Parties will share (on a pre-determined basis as agreed to by the Parties) in the reasonable costs incurred relating to the
removal of any such infringement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>Cooperation.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The Party not enforcing the applicable Patent will provide reasonable assistance to the other
Party, including providing access to relevant documents and other evidence, making its employees available at reasonable business hours, and joining the action to the extent necessary to allow the
enforcing Party to maintain the action. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>6.3.2&nbsp;Recovery.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Any amounts recovered by either or both Parties in connection with or as a result of any action
contemplated by Section&nbsp;6.3.1, whether by settlement or judgment, will be used to reimburse the Parties for their reasonable costs and expenses in making such recovery (which amounts will be
allocated pro rata if insufficient to cover the totality of such expenses), with any remainder in excess of the reasonable costs and expenses in making such recovery of the Party currently developing
or commercializing a Product will be treated as Net Sales and royalties will be owing in respect of such Net Sales pursuant to this Agreement. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;6.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Validity and Enforceability of Parties'
Technology.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree that during the Term of this Agreement, and for [***] years thereafter, neither Party will bring any action
in a court of law, or otherwise challenge the validity or enforceability of the other Party's Technology licensed under this Agreement. Notwithstanding the foregoing, nothing in this
Section&nbsp;6.4 will be deemed to waive or limit either Party's right to assert inventorship or ownership of any invention related to TS ASOs. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_7_#151;_term_and_termination"> </A>
<A NAME="toc_ku1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 7&#151;<BR>  TERM AND TERMINATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;7.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Term.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Unless earlier terminated in accordance
with the provisions of this Article&nbsp;7 or Section&nbsp;9.2, the term of this Agreement (the "Term") commences upon the Effective Date and will continue until for so long as a Product is being
developed or commercialized. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;7.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Rights in Bankruptcy.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All rights and licenses
granted under or pursuant to this Agreement by Isis or Sarissa are, and will otherwise be deemed to be, for purposes of Section&nbsp;365(n) of the United States Bankruptcy Code, licenses of rights
to "intellectual property" as defined under Section&nbsp;101 of the United States Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights under this Agreement, will retain
and may fully exercise all of their rights and elections under the United States Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or
against a Party under the United States Bankruptcy Code, the Party hereto that is not a Party to such proceeding will be entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party's possession, will be promptly delivered to it (a)&nbsp;upon
any such commencement of a bankruptcy proceeding upon the non-subject Party's written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its
obligations under this Agreement or (b)&nbsp;if not delivered under clause&nbsp;(a) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon
written request therefor by the non-subject Party. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;7.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Consequences of Expiration or Termination.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.3.1&nbsp;Licenses.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Upon expiration of the Term of this Agreement in accordance with Section&nbsp;7.1 or upon
termination of this Agreement in its entirety by either Party pursuant to this Article&nbsp;7 or Section&nbsp;9.2, and upon payment of all amounts owed pursuant to this Agreement, the licenses
granted by Isis to Sarissa, and by Sarissa to Isis, hereunder will terminate. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.3.2&nbsp;Return of Information and Materials.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Upon expiration of this Agreement pursuant to Section&nbsp;7.1 or
upon termination of this Agreement in its entirety by either Party pursuant to this Article&nbsp;7 or Section&nbsp;9.2, each Party, at the request of the other Party, will return all data, files,
records and other materials in its possession or control relating to such other Party's Technology, or containing or comprising such other Party's Information and Inventions or other Confidential
Information and, in each case, to which the returning Party does not retain rights hereunder (except one copy of which may be retained for archival purposes). </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;7.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Accrued Rights; Surviving Obligations.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.4.1&nbsp;Accrued Rights.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Termination or expiration of this Agreement for any reason will be without prejudice to
any rights or financial compensation that will have accrued to the benefit of a Party prior to such termination or expiration. Such termination or expiration will not relieve a Party from obligations
that are expressly indicated to survive the termination or expiration of this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>7.4.2&nbsp;Survival.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Articles 5, 6, 7, 9, 10 and 12, and Sections 2.3.3, 2.4 and 4.10 of this Agreement will survive
expiration or termination of this Agreement for any reason. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_8_#151;_material_breach_of_this_agreement"> </A>
<A NAME="toc_ku1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 8&#151;<BR>  MATERIAL BREACH OF THIS AGREEMENT    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;8.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Material Breach.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Failure by a Party to comply
with any of its material obligations contained herein will entitle the Party not in default to give to the defaulting Party notice specifying the nature of the material breach, requiring the
defaulting Party to make good or otherwise cure such </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
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<A NAME="page_ku1047_1_10"> </A>

<P><FONT SIZE=2>default,
and stating its intention to trigger the provisions of Section&nbsp;12.4 if such default is not cured. If such default is not cured within 90&nbsp;days after the receipt of such notice
(or, if such default cannot be cured within such 90-day period, if the Party in default does not commence actions to cure such default within such period and thereafter diligently continue
such actions), the Party not in default will be entitled, without prejudice to any of its other rights conferred on it by this Agreement, to trigger the provisions of Section&nbsp;12.4; </FONT> <FONT SIZE=2><I>provided, however</I></FONT><FONT
SIZE=2>, that in the event of a good faith dispute with respect to the existence of a material breach, the 90-day cure period will
be stayed until such time as the dispute is resolved pursuant to Section&nbsp;12.4 hereof. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_9_#151;_discontinued_development_by_sarissa"> </A>
<A NAME="toc_ku1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 9&#151;<BR>  DISCONTINUED DEVELOPMENT BY SARISSA    <BR>    </B></FONT></P>

<P><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;9.1</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In the event of a Discontinuance, whether voluntary or as determined under this
Agreement, Isis will have a reversion right as further described in Section&nbsp;9.2. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;9.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Reversion Rights.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Within 90&nbsp;days from
the date of Discontinuance, Isis may elect to unilaterally continue development of ASO Compounds that modulate TS, including, but not limited to the Discontinued Product by notice in writing to
Sarissa (an "Election Notice") that Isis is exercising its rights under this Section&nbsp;9.2. If Sarissa has not received an Election Notice from Isis within such 90&nbsp;day period, Isis will be
deemed to have declined to exercise its reversion rights, and this Agreement will terminate with respect to such Discontinued Product. Upon receipt of an Election Notice, Sarissa will grant to Isis an
exclusive, worldwide license or sublicense, as the case may be, to all Product-Specific Technology Patents controlled by Sarissa solely to develop, make, have made, use, sell, offer for sale, have
sold and import ASO Compounds that modulate TS, including, but not limited to the Discontinued Product. The license granted hereunder will be sublicensable only in connection with a license of a
Discontinued Product to a Third Party for the continued development and commercialization of the Discontinued Product in accordance with the terms of this Agreement. In consideration of Sarissa's
collaborative efforts and the licenses granted hereunder, Isis will pay to Sarissa (a)&nbsp;all royalty, milestone and other payments owing by Sarissa to a Third Party for additional Product
Specific Technology Patents in-licensed by Isis as a result of such reversion (for flow-through to the applicable Third Party); plus (b)&nbsp;a royalty on Net Sales of the
Discontinued Product at the applicable royalty rate noted in the following table, based on the stage of development the Discontinued Product at the time of the Discontinuance: </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="74%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="86%" ALIGN="LEFT"><FONT SIZE=1><B>Stage<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="12%" ALIGN="CENTER"><FONT SIZE=1><B>Applicable Royalty</B></FONT><HR NOSHADE></TH>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="86%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="86%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="86%"><FONT SIZE=2>[***]</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>[***]</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD><FONT SIZE=2>In
addition to the [***]% royalty above, Isis will also reimburse Sarissa for Sarissa's out-of-pocket expenses to
[***] as a result of, and through the date of, such reversion. </FONT></DD></DL>

<P><FONT SIZE=2>Isis
shall pay such royalties for the Term of the Agreement. All royalties and other payments due hereby will be paid in accordance with the provisions of Sections 4.6 through 4.10. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;9.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Isis Bankruptcy after Reversion.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;After
exercising its reversion rights under Section&nbsp;9.2, in the event of the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings by Isis or upon an assignment
of a substantial portion of the assets for the benefit of creditors by Isis; </FONT><FONT SIZE=2><I>provided, however</I></FONT><FONT SIZE=2>, in the case of any involuntary bankruptcy proceeding
such right to terminate will only become effective if Isis consents to the involuntary bankruptcy or such proceeding is not dismissed within 90&nbsp;days of the filing thereof. Sarissa will have
30&nbsp;days from the receipt of notice of such bankruptcy to notify Isis in writing whether or not Sarissa wishes to negotiate with Isis regarding the development and/or commercialization of a
Discontinued Product. If Sarissa fails </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

<HR NOSHADE>
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<A NAME="page_ku1047_1_11"> </A>
<BR>

<P><FONT SIZE=2>to
respond within such 30&nbsp;days or if Sarissa declines in writing to exercise its right of first negotiation, then Isis will be free to develop and commercialize (either on its own or with a
Third Party) the Discontinued Product. If Sarissa wishes to negotiate a license or development or commercialization rights in such Discontinued Product, Isis and Sarissa will negotiate in good faith
the terms of the license or collaboration agreement. If, despite good faith negotiations, Isis and Sarissa do not reach agreement within 120&nbsp;days from Sarissa's exercise of its right of first
negotiation, then Isis will be free to develop and commercialize (either on its own or with a Third Party) the Discontinued Product. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_10_#151;_indemnification_and_insurance"> </A>
<A NAME="toc_ku1047_4"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 10&#151;<BR>  INDEMNIFICATION AND INSURANCE    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;10.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Indemnification of Isis.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Sarissa will
indemnify Isis, and its respective directors, officers, employees and agents, and defend and hold each of them harmless, from and against any and all losses, damages, liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) to the extent arising from or occurring as a result of any and all liability suits, investigations, claims or demands by a Third Party
(collectively, "Losses") arising from or occurring as a result of or in
connection with (a)&nbsp;the gross negligence or willful misconduct on the part of Sarissa or its licensees or sublicensees in performing any activity contemplated by this Agreement, or,
(b)&nbsp;the manufacture, use, handling, storage, sale or other disposition of a Product that is sold by Sarissa, its Affiliates, agents or sublicensees. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;10.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Indemnification of Sarissa.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Isis will
indemnify Sarissa, and its respective directors, officers, employees and agents, and defend and save each of them harmless, from and against any and all Losses arising from or occurring as a result of
or in connection with (a)&nbsp;the gross negligence or willful misconduct on the part of Isis or its licensees or sublicensees in performing any activity contemplated by this Agreement, or,
(b)&nbsp;the manufacture, use, handling, storage, sale or other disposition of a Product that is sold by Isis, its Affiliates, agents or sublicensees. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;10.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Indemnification Procedure.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Party's
agreement to indemnify and hold the other harmless is conditioned upon the indemnified Party (i)&nbsp;providing written notice to the indemnifying Party of any claim, demand or action arising out of
the indemnified activities within thirty (30)&nbsp;days after the indemnified Party has knowledge of such claim, demand or action, (ii)&nbsp;permitting the indemnifying Party to assume full
responsibility to investigate, prepare for and defend against any such claim or demand, (iii)&nbsp;assisting the indemnifying Party, at the indemnifying Party's reasonable expense, in the
investigation of, preparation of and defense of any such claim or demand; and (iv)&nbsp;not compromising or settling such claim or demand without the indemnifying Party's prior written consent. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;10.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Insurance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Party will have and maintain
such types and amounts of liability insurance as is normal and customary in the industry generally for parties similarly situated, and will upon request provide the other Party with a certificate of
insurance. Each party will promptly notify the other Party of any material change in insurance coverage or lapse in coverage in that regard. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_11_#151;_representations_and_warranties"> </A>
<A NAME="toc_ku1047_5"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 11&#151;<BR>  REPRESENTATIONS AND WARRANTIES    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;11.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Representations, Warranties and
Covenants.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Party hereby represents, warrants and covenants to the other Party as of the Effective Date as follows: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.1.1&nbsp;Corporate Authority.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Such Party (a)&nbsp;has the power and authority and the legal right to enter into
this Agreement and perform its obligations hereunder, and (b)&nbsp;has taken all necessary action on its part required to authorize the execution and delivery of this Agreement and the performance
of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of such Party and constitutes a legal, valid and binding obligation of such Party and is enforceable against
it in accordance with its terms subject to the effects of bankruptcy, insolvency </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
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<A NAME="page_ku1047_1_12"> </A>
<UL>

<P><FONT SIZE=2>or
other laws of general application affecting the enforcement of creditor rights and judicial principles affecting the availability of specific performance and general principles of equity, whether
enforceability is considered a proceeding at law or equity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.1.2&nbsp;Consents, Approvals, etc.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>All necessary consents, approvals and authorizations of all Regulatory
Authorities and other parties required to be obtained by such Party in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder have been obtained. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.1.3&nbsp;Conflicts.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The execution and delivery of this Agreement and the performance of such Party's obligations
hereunder (a)&nbsp;do not conflict with or violate any requirement of Applicable Law or any provision of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable,
in any material way, and (b)&nbsp;do not conflict with, violate, or breach or constitute a default or require any consent not already obtained under, any contractual obligation or court or
administrative order by which such Party is bound. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.1.4&nbsp;Debarment.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>No such Party nor any of its Affiliates has been debarred or is subject to debarment and
neither such Party nor any of its Affiliates will use in any capacity, in connection with the services to be performed under this Agreement, any party who has been debarred pursuant to
Section&nbsp;306 of the Federal Food, Drug, and Cosmetic Act, as amended, or who is the subject of a conviction described in such section. Each Party will inform the other Party in writing
immediately if it or any party who is performing services hereunder is debarred or is the subject of a conviction described in Section&nbsp;306, or if any action, suit, claim, investigation or legal
or administrative proceeding is pending or, to such Party's knowledge, is threatened, relating to the debarment or conviction of such Party or any party performing services hereunder. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>11.1.5&nbsp;Compliance with Laws.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Each Party will carry out its work under this Agreement in compliance with any
applicable laws including, without limitation, federal, state, or local laws, regulations, or guidelines governing the work at the site where such work is being conducted. Moreover, each Party will
carry out all work under the Collaboration in accordance with current Good Laboratory Practices, Good Clinical Practices, and Good Manufacturing Practices, if applicable based on the specific work to
be conducted. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;11.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>DISCLAIMER OF WARRANTY.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;EXCEPT FOR THE
EXPRESS WARRANTIES SET FORTH IN SECTIONS 11.1, SARISSA AND ISIS MAKE NO REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND
SARISSA AND ISIS EACH SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR
PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ku1047_article_12_#151;_miscellaneous"> </A>
<A NAME="toc_ku1047_6"> </A>
<BR></FONT><FONT SIZE=2><B>ARTICLE 12&#151;<BR>  MISCELLANEOUS    <BR>    </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.1</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Assignment.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Without the prior written
consent of the other Party hereto, neither Party will sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this
Agreement or any of its rights or duties hereunder; </FONT><FONT SIZE=2><I>provided, however,</I></FONT><FONT SIZE=2> that either Party hereto may (i)&nbsp;assign or transfer this Agreement or any
of its rights or obligations hereunder without the consent of the other Party to any Third Party with which it has merged or consolidated, or to which it has transferred all or substantially all of
its assets or stock to which this Agreement relates if in any such event the Third Party assignee or surviving entity assumes </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
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<A NAME="page_ku1047_1_13"> </A>
<BR>

<P><FONT SIZE=2>in
writing all of the assigning Party's obligations under this Agreement or (ii)&nbsp;assign or transfer its rights under Article&nbsp;4 (but no liabilities) to a Third Party in connection with a
royalty factoring transaction. Any purported assignment or transfer in violation of this Section will be void </FONT><FONT SIZE=2><I>ab initio</I></FONT><FONT SIZE=2> and of no force or effect. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.2</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Severability.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;If any provision of this
Agreement is held to be illegal, invalid or unenforceable by a court of competent jurisdiction, such adjudication shall not affect or impair, in whole or in part, the validity, enforceability, or
legality of any remaining portions of this Agreement. All remaining portions shall remain in full force and effect as if the original Agreement had been executed without the invalidated, unenforceable
or illegal part. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.3</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Governing Law.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement will be
governed by and construed in accordance with the laws of Delaware without reference to any rules of conflicts of laws. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.4</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Dispute Resolution.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.1&nbsp;General.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Any dispute, controversy or claim arising from or related to this Agreement or the breach
thereof will first be referred to the attention of the Chief Executive Officers of Sarissa and the Executive Vice President of Isis (the "Executive Officers") by notice in writing in accordance with
the terms of this Agreement. The Executive Officers (or their respective designees) will meet as soon as reasonably possible thereafter, and use their good faith efforts to mutually agree upon the
resolution of the dispute, controversy or claim. If any dispute, controversy or claim is not resolved by the Executive Officers of the Parties (or their designees) within 30&nbsp;days after such
dispute is referred to them, then either Party will have the right to arbitrate such dispute in accordance with Section&nbsp;12.4.2. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.2&nbsp;Arbitration.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If the Parties do not fully settle any dispute, controversy or claim pursuant to
Section&nbsp;12.4.1 and a Party wishes to pursue the matter further, each such dispute, controversy or claim will be finally resolved by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"), and judgment on the arbitration award may be entered in any court having jurisdiction thereof. The arbitration will be conducted by a
panel of three persons experienced in the pharmaceutical business: within 30&nbsp;days after initiation of arbitration, each Party will select one person to act as arbitrator and the two
Party-selected arbitrators will select a third arbitrator within 30&nbsp;days of their appointment. If the arbitrators selected by the Parties are unable or fail to agree upon the third arbitrator,
the third arbitrator will be appointed by the AAA. No individual shall be appointed to arbitrate a dispute pursuant to this Agreement unless he or she agrees in writing to be bound by the provisions
of this Section&nbsp;12.4. The place of arbitration will be San Diego, CA. Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the
controversy is otherwise resolved. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.3&nbsp;Disputes Regarding Material Breach.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>If the Parties are in dispute as to whether one party is in material
breach of this Agreement, then the arbitrators will first determine if material breach has in fact occurred, and if so, will grant the defaulting Party the cure period provided pursuant to
Section&nbsp;8.1. If the material breach is not cured within the time period provided pursuant to Section&nbsp;8.1, the arbitration will continue and the arbitrators will, as part of the same
arbitration, award damages to the non-defaulting Party. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.4&nbsp;Costs and Expenses.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Except as expressly provided herein, each Party will bear its own costs and expenses
and attorneys' fees and an equal share of the arbitrators' and any administrative fees of arbitration. Notwithstanding the foregoing, if a Party has been found to be in material breach of this
Agreement, the defaulting Party will be responsible for both Parties' costs and expenses (including the costs of the arbitrators and any administrative fees of arbitration) and the reasonable
attorneys' fees of the non-defaulting Party. </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
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<UL>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.5&nbsp;Procedure.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>Except to the extent necessary to confirm an award or as may be required by law, neither a
Party nor an arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both Parties. In no event will an arbitration be initiated after the date
when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable Delaware statute of limitations. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.6&nbsp;Speedy Resolution.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The Parties intend, and shall take all reasonable action as is necessary or desirable
to ensure, that there be a speedy resolution to any dispute which becomes the subject of arbitration, and the arbitrators shall conduct the arbitration so as to resolve the dispute as expeditiously as
possible. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>12.4.7&nbsp;Awards.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>The arbitrators may award monetary damages and injunctive relief, but may not order the granting
or termination of licenses or assign rights to a Product to either of the Parties. Monetary damages shall be in the form of off-set royalties or otherwise, to account for the damages to
the non-defaulting Party from the breach, and to account for the defaulting Party's contribution to the Product in view of the breach. All awards shall be in writing and shall state
reasons. Executed copies of all awards shall be delivered by the arbitrators to the Parties as soon as is reasonably possible. All awards of the arbitrators shall be final and binding on the Parties,
and there shall be no appeal of any such award whatsoever. The Parties undertake to satisfy any award without delay. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.5</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Notices.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All notices or other communications
that are required or permitted hereunder will be in writing and delivered personally with acknowledgement of receipt, sent by facsimile (and promptly confirmed by personal delivery, registered or
certified mail or overnight courier as provided herein), sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed
as follows: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
to Sarissa, to: </FONT></P>

<UL>
<UL>
<UL>

<P><FONT SIZE=2>Sarissa,&nbsp;Inc.<BR>
121 Timber Drive<BR>
London, ON N6K4A2<BR>
Canada<BR>
Attention: Jim Koropat<BR>
Facsimile: (519)&nbsp;685-8624<BR>
<BR>
with a copy to:<BR>
<BR>
[to be determined] </FONT></P>

</UL>
</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
to Isis, to: </FONT></P>

<UL>
<UL>
<UL>

<P><FONT SIZE=2>Isis
Pharmaceuticals,&nbsp;Inc.<BR>
2292 Faraday Avenue<BR>
Carlsbad, California 92008<BR>
Attention: Executive Vice President<BR>
Facsimile: (760)&nbsp;603-4650<BR>
<BR>
with a copy to:<BR>
<BR>
Attention: General Counsel<BR>
Facsimile: (760)&nbsp;268-4922 </FONT></P>

</UL>
</UL>
</UL>

<P><FONT SIZE=2>or
to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication will be deemed to have been given
(i)&nbsp;when delivered, if personally delivered or sent by facsimile on a Business Day, (ii)&nbsp;on the Business Day after dispatch, if sent by nationally-recognized overnight courier, and
(iii)&nbsp;on the third business day following the date of mailing, if sent by mail. It is understood and agreed that this Section&nbsp;12.5 is not </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

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<A NAME="page_ku1047_1_15"> </A>

<P><FONT SIZE=2>intended
to govern the day-to-day business communications necessary between the Parties in performing their duties, in due course, under the terms of this Agreement. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.6</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Entire Agreement; Modifications.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all prior agreements, understanding, promises and
representations, whether written or oral, with respect thereto (including, but not limited to that certain material transfer agreement dated March&nbsp;22, 1996, between Isis and D. James
Koropatnick) are superseded hereby. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein. No amendment,
modification, release or discharge will be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.7</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Relationship of the Parties.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;It is expressly
agreed that the Parties will be independent contractors of one another and that the relationship between the Parties will not constitute a partnership, joint venture or agency. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.8</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Waiver.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Any term or condition of this
Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver will be effective unless set forth in a written instrument duly executed by or on behalf of
the Party waiving such term or condition. Any such waiver will not be deemed a waiver of any other right or breach hereunder. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.9</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Counterparts.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;This Agreement may be executed
in two (2)&nbsp;or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.10</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>No Benefit to Third Parties.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The
representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they will not be
construed as conferring any rights on any other parties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Section&nbsp;12.11</I></B></FONT><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;</I></FONT><FONT SIZE=2><B>Further Assurance.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Each Party will duly
execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments,
agreements, documents and instruments, as may be necessary to carry out the provisions and purposes of this Agreement. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>IN WITNESS WHEREOF,</B></FONT><FONT SIZE=2> the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date
first above written. </FONT></P>

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<TABLE WIDTH="76%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2><B>SARISSA, INC.</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2><B>ISIS PHARMACEUTICALS, INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2><BR>
Per: /s/&nbsp;&nbsp;</FONT><FONT SIZE=2>MARK VINCENT</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2><BR>
Per: /s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2><BR>
Mark Vincent<BR>
President and CEO</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2><BR>
B. Lynne Parshall<BR>
Executive Vice President and CFO</FONT></TD>
</TR>
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<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

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NAME="page_kw1047_1_1"> </A> </FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kw1047_appendix_1_definitions"> </A>
<A NAME="toc_kw1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>APPENDIX 1<BR>  <BR>  <U>Definitions</U>  <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>"Affiliate"</B></FONT><FONT SIZE=2> of a party means any other party that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with such first party. For purposes of this definition only, "control" and, with correlative meanings, the terms "controlled by" and "under
common control with" will mean (a)&nbsp;the possession, directly or indirectly, of the power to direct the management or policies of a party, whether through the ownership of voting securities or by
contract relating to voting rights or corporate governance, and (b)&nbsp;the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities or other ownership interest
of a party; </FONT><FONT SIZE=2><I>provided that</I></FONT><FONT SIZE=2>, if local law restricts foreign ownership, control will be established by direct or indirect ownership of the maximum
ownership percentage that may, under such local law, be owned by foreign interests. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Antisense Compound"</B></FONT><FONT SIZE=2> means an oligomeric compound or analog, mimic or mimetic thereof having a sequence that is partially or wholly
complementary to the sequence of a messenger RNA (pre-mRNA or mRNA), viral RNA, or noncoding RNA that directly modulates RNA expression. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Applicable Law"</B></FONT><FONT SIZE=2> means the applicable laws, rules, and regulations, including any rules, regulations, guidelines, or other requirements of
the Regulatory Authorities, that may be in effect from time to time. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Business Day"</B></FONT><FONT SIZE=2> means any day, other than Saturday, Sunday or any statutory holiday in the United
States</FONT><FONT SIZE=2><B><I>.</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Calendar Year"</B></FONT><FONT SIZE=2> means each successive period of 12&nbsp;months commencing on January&nbsp;1 and ending on December&nbsp;31. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Collaboration"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;2.1. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Commercially Reasonable Efforts"</B></FONT><FONT SIZE=2> means, with respect to the research, development, manufacture or commercialization of the Product,
efforts and resources commonly used in the biotechnology industry for products of similar commercial potential at a similar stage in its lifecycle, taking into consideration their safety and efficacy,
cost to develop, priority in relation to other products under development by the other Party, the competitiveness of alternative products, proprietary position, the likelihood of regulatory approval,
profitability, and all other relevant factors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Confidential Information"</B></FONT><FONT SIZE=2> means all information and know-how and any tangible embodiments thereof provided by or on behalf of
one Party to the other Party either in connection with the discussions and negotiations pertaining to this Agreement or in the course of performing this Agreement, including data; knowledge;
practices; processes; ideas; research plans; engineering designs and drawings; research data; manufacturing processes and techniques; scientific, manufacturing, marketing and business plans; and
financial and personnel matters relating to the disclosing Party or to its present or future products, sales, suppliers, customers, employees, investors or business. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the foregoing, information or know-how of a Party shall not be deemed Confidential Information for purposes of this Agreement if such information or
know-how: </FONT></P>

<UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(a)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was already known to the receiving Party, other than under an obligation of confidentiality or non-use, at
the time of disclosure to such receiving Party; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(b)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was generally available or known to parties reasonably skilled in the field to which such information or
know-how pertains, or was otherwise part of the public domain, at the time of its disclosure to, or, with respect to know-how, discovery or development by, such receiving
Party; </FONT></P>

</UL>
<P ALIGN="CENTER"><FONT SIZE=2>A-1</FONT></P>

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<UL>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(c)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>became generally available or known to parties reasonably skilled in the field to which such information or
know-how pertains, or otherwise became part of the public domain, after its disclosure to such receiving Party through no fault of the receiving Party; </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(d)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was disclosed to such receiving Party, other than under an obligation of confidentiality or non-use, by a
Third Party who had no obligation to the disclosing Party not to disclose such information or know-how to others; or </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>(e)&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2>was independently discovered or developed prior to disclosure by such receiving Party, as evidenced by their written
records, without the use of Confidential Information belonging to the disclosing Party. </FONT></P>

</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Control"</B></FONT><FONT SIZE=2> means, with respect to any Patent or other intellectual property right, possession of the right (whether by ownership, license
or otherwise), to assign, or grant a license, sublicense or other right to or under, such Patent or right as provided for herein without violating the terms of any agreement or other arrangement with
any Third Party or incurring any additional financial or other obligation to a Third Party except the obligations specifically described in Section&nbsp;4.5 </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Discontinuance"</B></FONT><FONT SIZE=2> means the occurrence of any one of the following:</FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>1</B></FONT></DT><DD><FONT SIZE=2>Sarissa voluntarily elects to abandon as a whole the concept of researching and/or developing TS ASOs, as evidenced by a written communication from an authorized
officer of Sarissa to Isis.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2><B>2.</B></FONT></DT><DD><FONT SIZE=2>a Discontinuance has been deemed to have occurred pursuant to Section&nbsp;3.1.4. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Discontinued Product"</B></FONT><FONT SIZE=2> means a TSA ASO that was abandoned as part of a Discontinuance. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Election Notice"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;9.2. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Equity Securities"</B></FONT><FONT SIZE=2> means Sarissa's preferred or common stock (any other convertible security sold in connection therewith). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"FDA"</B></FONT><FONT SIZE=2> means the United States Food and Drug Administration and any successor agency thereto. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Gene Walk"</B></FONT><FONT SIZE=2> means the manufacturing of greater than 30 individual sequences corresponding to TS and the evaluation of such sequences in a
high-throughput screen that enables an analysis of each sequence's ability to down regulate TS mRNA in vitro. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"GAAP"</B></FONT><FONT SIZE=2> means generally accepted accounting principles of the United States consistently applied. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"IND"</B></FONT><FONT SIZE=2> means an investigational new drug application filed with the FDA or TPD for authorization to commence human clinical trials, and its
equivalent in other countries or regulatory jurisdictions. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Isis Core Technology Patents"</B></FONT><FONT SIZE=2> means Patents Controlled by Isis on the Effective Date that are necessary for the development and
commercialization of the Product, but not including the Isis Product-Specific Technology Patents, or Patents Controlled by Isis that claim formulation, delivery, manufacturing technologies or
chemistries (except for the MOE chemistry). A representative list of the Isis Core Technology Patents is attached hereto as Appendix&nbsp;3. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Isis Patent Rights"</B></FONT><FONT SIZE=2> means any Patents owned or Controlled by Isis. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Joint Patents"</B></FONT><FONT SIZE=2> means all Patents that claim, and only to the extent that they claim, Joint Technology. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Joint Technology"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;6.1.1. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Losses"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;10.1. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Major Market"</B></FONT><FONT SIZE=2> means the [***]. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-2</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"NDA"</B></FONT><FONT SIZE=2> means a New Drug Application filed with the FDA after completion of clinical trials to obtain marketing approval for commercial
product in the United States or equivalent application for regulatory approval in other Major Market countries. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Net Sales"</B></FONT><FONT SIZE=2> means the gross invoice price of the Product sold by the Party having the right to sell or have sold the Product pursuant to
this Agreement, and/or sublicensees of such Party, to a Third Party which is not a sublicensee of the selling party (unless such sublicensee is the end user of the Product, in which case the amount
billed therefor shall be deemed to be the amount that would be billed to a Third Party in an arm's-length transaction) for sales of such Product to such end users less the following items, as
allocable to such Product (if not previously deducted from the amount invoiced): (i)&nbsp;trade discounts, credits or allowances, (ii)&nbsp;credits or allowances additionally granted upon returns,
rejections or recalls, (iii)&nbsp;freight, shipping and insurance charges, (iv)&nbsp;taxes, duties or other governmental tariffs (other than income taxes), and (v)&nbsp;government mandated
rebates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Note"</B></FONT><FONT SIZE=2> means the Convertible Promissory Note attached as Exhibit&nbsp;A to the Note Purchase Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Patents"</B></FONT><FONT SIZE=2> shall include (x)&nbsp;all U.S. patents and patent applications, (y)&nbsp;any substitutions, divisions, continuations,
reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates and the like, and any provisional applications, of any such patents or
patent applications, and (z)&nbsp;any foreign or international equivalent of any of the foregoing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Phase I Clinical Trial"</B></FONT><FONT SIZE=2> means the initial clinical testing of the Product in humans (first-in-humans study) with
the intention of gaining a preliminary assessment of the safety of the Product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Pivotal Quality Clinical Trial"</B></FONT><FONT SIZE=2> means a human clinical trial of the Product designed to be of a size and statistical power to support an
NDA filing alone or in combination with other studies. If it is unclear whether or not a study design will be sufficient to support an NDA filing (other than by virtue of the uncertainty of efficacy
data from that trial) the study will be deemed to be a Pivotal Quality Clinical Trial on the initiation of activities to support an NDA filing. Initiation of a Phase III clinical study will be deemed
to be initiation of a Pivotal Quality Clinical Trial. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Product"</B></FONT><FONT SIZE=2> means a pharmaceutical preparation comprising any single TS ASO or Tandem selected by Sarissa under Section&nbsp;2.3.1 or
2.3.2. After the Project Plan has been completed, the Parties will append to this Agreement the specific sequence and chemistry of each TS ASO which constitutes the active pharmaceutical ingredient in
each Product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Product-Specific Technology"</B></FONT><FONT SIZE=2> means any discovery, device, process, method of use, composition, or formulation, whether or not patented or
patentable, which is made or Controlled solely by Isis or Sarissa, or jointly by Isis and Sarissa, prior to the Effective Date or during the Term of this Agreement, and which relate only to the
composition of matter or gene targets down regulated by a Product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Product-Specific Technology Patents"</B></FONT><FONT SIZE=2> means all Patents that disclose or claim Product-Specific Technology. A representative list of the
Product-Specific Technology Patents is attached hereto as Appendix&nbsp;4. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Project Plan"</B></FONT><FONT SIZE=2> means the Parties' initial development plan for Collaboration Activities, as further described on Schedule&nbsp;2.3. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;"</FONT><FONT
SIZE=2><B>Qualified Financing"</B></FONT><FONT SIZE=2> means (i)&nbsp;with respect to Sarissa's first financing, when Sarissa issues and sells shares of its Equity
Securities to investors on or before the [***] year anniversary of this Agreement in a financing with total proceeds received by Sarissa of not less than
$[***]; and (ii)&nbsp;with respect to any subsequent financing, when Sarissa issues and sells shares of its Equity Securities to investors in a financing with total proceeds
received by Sarissa of not less than $[***]. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-3</FONT></P>

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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Regulatory Approval</B></FONT><FONT SIZE=2>" means (a)&nbsp;in the United States, approval by the FDA of an NDA, or similar application for marketing approval,
and satisfaction of any related applicable FDA registration and notification requirements (if any), and (b)&nbsp;in a Major Market other than the United States, approval by regulatory authorities
having jurisdiction over such country of a single application or set of applications comparable to an NDA and satisfaction of any related applicable regulatory and notification requirements (if any). </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Regulatory Authority"</B></FONT><FONT SIZE=2> means any applicable government entities regulating or otherwise exercising authority with respect to the
development and commercialization of the Product. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Regulatory Documentation</B></FONT><FONT SIZE=2>" means all applications, registrations, licenses, authorizations and approvals (including all Regulatory
Approvals), all correspondence submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority), all
supporting documents and all clinical studies and tests, including the manufacturing batch records, relating to the Product, and all data contained in any of the foregoing, including all regulatory
drug lists, advertising and promotion documents, adverse event files and complaint files. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Royalty Due Dates"</B></FONT><FONT SIZE=2> means the last working days of March, June, September and December of each and every year during which this Agreement
remains in full force and effect. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Tandem"</B></FONT><FONT SIZE=2> means two or more TS ASOs that (i)&nbsp;where identified as part of the same Gene Walk and (ii)&nbsp;are used in combination
with each other to simultaneously modulate TS. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Technology"</B></FONT><FONT SIZE=2> means Isis Patent Rights, Sarissa Product-Specific Technology Patents, Joint Patents and/or the Joint Technology (including
any Joint Product-Specific Technology), as applicable. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Term"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;7.1. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Third Party"</B></FONT><FONT SIZE=2> means any party other than Isis or Sarissa or their respective Affiliates. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"TS"</B></FONT><FONT SIZE=2> has the meaning set forth in the preamble to this Agreement. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"TS ASO"</B></FONT><FONT SIZE=2> means a single-stranded oligonucleotide or an analog thereof that hybridizes to TS mRNA using Watson-Crick base pairing and
inhibits production of TS via an RNase-H mechanism</FONT><FONT SIZE=2><B><I>.</I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Valid Claim"</B></FONT><FONT SIZE=2> means a claim which (i)&nbsp;in the case of any unexpired United States or foreign patent, shall not have been donated to
the public, disclaimed or held invalid or unenforceable by a court of competent jurisdiction in an unappealed or unappealable decision, or (ii)&nbsp;in the case of any United States or foreign
patent application, shall not have been permanently cancelled, withdrawn, or abandoned. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>"Withholding Taxes"</B></FONT><FONT SIZE=2> has the meaning set forth in Section&nbsp;4.9. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>A-4</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ky1047_appendix_2.3.1_project_plan"> </A>
<A NAME="toc_ky1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>APPENDIX 2.3.1<BR>  PROJECT PLAN    <BR>    </B></FONT></P>

<P><FONT SIZE=2>[***]
</FONT></P>

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<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ky1047_appendix_3_isis_core_technology_patents"> </A>
<A NAME="toc_ky1047_2"> </A>
<BR></FONT><FONT SIZE=2><B>APPENDIX 3<BR>  ISIS CORE TECHNOLOGY PATENTS    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>[***] </FONT></P>

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NAME="ky1047_appendix_4_product-specific_technology_patents"> </A>
<A NAME="toc_ky1047_3"> </A>
<BR></FONT><FONT SIZE=2><B>APPENDIX 4<BR>  PRODUCT-SPECIFIC TECHNOLOGY PATENTS    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>[***] </FONT></P>

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<BR>
<P><br><A NAME="05SAN1045_8">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ks1047_1">COLLABORATION AND LICENSE AGREEMENT</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_2">ARTICLE 1&#151;DEFINITIONS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_3">ARTICLE 2&#151; SCOPE OF COLLABORATION; COLLABORATION ACTIVITIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_4">ARTICLE 3&#151; GRANT OF RIGHTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_5">ARTICLE 4&#151;FINANCIAL PROVISIONS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_6">ARTICLE 5&#151; CONFIDENTIALITY</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ks1047_7">ARTICLE 6&#151; INTELLECTUAL PROPERTY</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ku1047_1">ARTICLE 7&#151; TERM AND TERMINATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ku1047_2">ARTICLE 8&#151; MATERIAL BREACH OF THIS AGREEMENT</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ku1047_3">ARTICLE 9&#151; DISCONTINUED DEVELOPMENT BY SARISSA</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ku1047_4">ARTICLE 10&#151; INDEMNIFICATION AND INSURANCE</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ku1047_5">ARTICLE 11&#151; REPRESENTATIONS AND WARRANTIES</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ku1047_6">ARTICLE 12&#151; MISCELLANEOUS</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_kw1047_1">APPENDIX 1 Definitions</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_ky1047_1">APPENDIX 2.3.1 PROJECT PLAN</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ky1047_2">APPENDIX 3 ISIS CORE TECHNOLOGY PATENTS</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ky1047_3">APPENDIX 4 PRODUCT-SPECIFIC TECHNOLOGY PATENTS</A></FONT><BR>
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<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>9
<FILENAME>a2153640zex-21_1.htm
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><B>Exhibit&nbsp;21.1  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="lm1047_list_of_subsidiaries_for_the_registrant"> </A>
<A NAME="toc_lm1047_1"> </A>
<BR></FONT><FONT SIZE=2><B>LIST OF SUBSIDIARIES FOR THE REGISTRANT    <BR>    </B></FONT></P>

<P><FONT SIZE=2>Isis
Pharmaceuticals Singapore Pte&nbsp;Ltd., a Singapore Limited Private Company<BR>
Hepasense,&nbsp;Ltd., a Bermuda Limited Company<BR>
Orasense,&nbsp;Ltd., a Bermuda Limited Company<BR>
PerIsis&nbsp;I Development Corporation, a Delaware Corporation </FONT></P>

<HR NOSHADE>
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<FONT SIZE=2><A HREF="#toc_lm1047_1">LIST OF SUBSIDIARIES FOR THE REGISTRANT</A></FONT><BR>
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<TYPE>EX-23.1
<SEQUENCE>10
<FILENAME>a2153640zex-23_1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="ka1045_exhibit_23.1"> </A>
<A NAME="toc_ka1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;23.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ka1045_consent_of_independent___ka102323"> </A>
<A NAME="toc_ka1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consent to the incorporation by reference in the Registration Statements (Form&nbsp;S-3 Nos.&nbsp;33-55790, 33-72124
33-75068, 33-96138, 333-71911, 333-90811, 333-38844, 333-71116, 333-71176, 333-89066,
333-89626 and Form&nbsp;S-8 Nos. 333-116962, 33-42356, 33-42970, 33-51236, 33-54840, 33-58450,
33-43330, 33-75150, 33-90780, 333-05825, 333-55683, 333-40336, 333-59296, 333-91572,
333-106859) of Isis Pharmaceuticals,&nbsp;Inc. and in the related Prospectuses of our reports dated March 3, 2005, with respect to: (1)&nbsp;the consolidated financial statements of
Isis Pharmaceuticals,&nbsp;Inc., and (2)&nbsp;management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial
reporting of Isis Pharmaceuticals,&nbsp;Inc., included in this Annual Report (Form&nbsp;10-K) for the year ended December&nbsp;31, 2004. </FONT></P>

<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT
SIZE=2>ERNST &amp; YOUNG LLP</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>
</UL>

<P><FONT SIZE=2>San
Diego, California<BR>
March&nbsp;10, 2005 </FONT></P>

<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<FONT SIZE=2><A HREF="#toc_ka1045_1">Exhibit 23.1</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_ka1045_2">CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</A></FONT><BR>

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<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>11
<FILENAME>a2153640zex-31_1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="kc1045_exhibit_31.1"> </A>
<A NAME="toc_kc1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 31.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kc1045_certification"> </A>
<A NAME="toc_kc1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>I,
Stanley T. Crooke, certify that: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this Annual Report on Form&nbsp;10-K of Isis Pharmaceuticals,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this annual report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>d)</FONT></DT><DD><FONT SIZE=2>Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dated:
March&nbsp;15, 2005 </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>STANLEY T. CROOKE, M.D., PH.D.</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Stanley T. Crooke, M.D., Ph.D.<BR></FONT> <FONT
SIZE=2><I>Chief Executive Officer</I></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<UL>
<FONT SIZE=2><A HREF="#toc_kc1045_1">EXHIBIT 31.1</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_kc1045_2">CERTIFICATION</A></FONT><BR>
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<TYPE>EX-31.2
<SEQUENCE>12
<FILENAME>a2153640zex-31_2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="ke1045_exhibit_31.2"> </A>
<A NAME="toc_ke1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>EXHIBIT 31.2    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="ke1045_certification"> </A>
<A NAME="toc_ke1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>I,
B. Lynne Parshall, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this Annual Report on Form&nbsp;10-K of Isis Pharmaceuticals,&nbsp;Inc.;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this annual report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and 15d-15(f))
for the registrant and have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>d)</FONT></DT><DD><FONT SIZE=2>Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
<BR><BR></FONT></DD></DL>
</DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. </FONT></DD></DL>
</DD></DL>

<P><FONT SIZE=2>Dated:
Match 15, 2005 </FONT></P>

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<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> B. Lynne Parshall, J.D.<BR></FONT> <FONT SIZE=2><I>Chief
Financial Officer</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
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<HR NOSHADE>
<P style='page-break-before:always'></p>
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<UL>
<FONT SIZE=2><A HREF="#toc_ke1045_1">EXHIBIT 31.2</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_ke1045_2">CERTIFICATION</A></FONT><BR>
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<TYPE>EX-32.1
<SEQUENCE>13
<FILENAME>a2153640zex-32_1.htm
<DESCRIPTION>3XHIBIT 32.1
<TEXT>
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<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="kg1045_exhibit_32.1"> </A>
<A NAME="toc_kg1045_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;32.1    <BR>    </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="kg1045_certification"> </A>
<A NAME="toc_kg1045_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION    <BR>    </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirement set forth in Rule&nbsp;13a-14(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Section&nbsp;1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. &sect;1350), Stanley T. Crooke, the Chief Executive Officer of Isis Pharmaceuticals,&nbsp;Inc., (the
"Company"), and B. Lynne Parshall, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>The
Company's Annual Report on Form&nbsp;10-K for the period ended December&nbsp;31, 2004, to which this Certification is attached as Exhibit&nbsp;32.1 (the "Annual
Report"), fully complies with the requirements of Section&nbsp;13(a) or Section&nbsp;15(d) of the Securities Exchange Act of 1934, as amended; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>The
information contained in the Annual Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Annual Report
and the results of operations of the Company for the period covered by the Annual Report. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>Dated:
March&nbsp;15, 2005 </FONT></P>

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<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>STANLEY T. CROOKE</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Stanley T. Crooke, M.D., Ph.D.<BR></FONT> <FONT SIZE=2><I>Chief Executive
Officer</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>B. LYNNE PARSHALL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> B. Lynne Parshall, J.D.<BR></FONT> <FONT SIZE=2><I>Chief Financial
Officer</I></FONT></TD>
</TR>
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<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
signed original of this written statement required by Section&nbsp;906 has been provided to Isis Pharmaceuticals,&nbsp;Inc. and will be retained by Isis
Pharmaceuticals,&nbsp;Inc. and furnished to the Securities and Exchange Commission or its staff upon request</FONT><FONT SIZE=2><B>.</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
certification accompanies the Form&nbsp;10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by
reference into any filing of Isis Pharmaceuticals,&nbsp;Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date
of the Form&nbsp;10-K), irrespective of any general incorporation language contained in such filing. </FONT></P>

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<P><br><A NAME="05SAN1045_13">QuickLinks</A><br></P><!-- TOC_BEGIN -->
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<FONT SIZE=2><A HREF="#toc_kg1045_1">Exhibit 32.1</A></FONT><BR>
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<FONT SIZE=2><A HREF="#toc_kg1045_2">CERTIFICATION</A></FONT><BR>
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